There are 4.75 million self-employed people in the UK, according to the Office For National Statistics. This number has grown steadily and shows no sign of slowing down. It’s more important than ever that we talk about those Self-Employed business owners who try (and fail) to get a mortgage.
Do you know what? I think one of the major reasons that applications get rejected is not down to the lender at all. It’s actually because the client makes the application to the wrong lender.
It’s why it’s so important for people to seek the best financial advice. The average high street mortgage shopper wouldn’t know which of the lender is right for them. You see, if you apply to a lender and they say no, other lenders can often say no just because another lender rejected you. This happens a lot if you apply to multiple lenders at the same time, or within a short period of time like 3 months.
Instead, I would be able to look over your details, your financials and give you advice on which lender to apply to for the best chance of success. That would save you a lot of heartache and your credit rating wouldn’t take a temporary spanking by having multiple applications rejected. There is no one size fits all approach with us, we assess every application individually.
There have been some real positive moves from lenders to help change the landscape for self-employed people who are trying to get a mortgage, and that’s really good news. There are a lot of specialist lenders out there now that have application processes specifically tailored for people who are self-employed.
We do offer a comprehensive range of mortgages from across the market, but not deals that you can only obtain by going direct to a Lender.
Lenders like Aldermore have reduced their accounts criteria from 2 years to 1 meaning some business owners could apply for a mortgage in half the time they originally thought if the necessary accounts are in place. This could be really useful if you have a young business that is growing fast. Of course there are other lenders out there who will consider 1 years accounts with much lower interest rates BUT you should have experience in your trade, and projections for the second year of trading.
As you will know, half the battle in successfully applying for a mortgage as a business owner is in proving your earnings. It’s where lots of applications fail. Self Employed income and the value of retained profits is not as straight forward as standard employed income, therefore we would suggest you seek advice from a Brokerage who are aware of the ins and outs of it all.
You see it isn’t just the money you take out of your limited company (like salary and dividends) that matters. Lenders can sometimes consider other factors like retained net profit when considering mortgage applications.
It’s all part of the landscape changing and in future it should be easier for self-employed people to get a mortgage to buy their dream home.
In 2016, Kent Reliance reduced its criteria from 3 years of trading history to just 1 year in a similar but bigger move than Aldermore (1).
In Jan 2017, Aldermore promised a “human approach to lending”, considering each case individually (2).
Jeremy Wood, Chief Executive of Dudley Building Society said, “We must lend intelligently”, pioneering products specifically for the self-employed that take each application on it’s merits (3).
Newcastle Intermediaries have also taken steps to produce a range of mortgage products for the self-employed (1).
These changes from the last 12 months do not necessarily mean you will automatically be accepted for a mortgage because you are self-employed and apply for a self-employed mortgage product but it could be seen as a changing of the tide that is rebalancing the mortgage battle. You’ll still need to prove your income and show that your mortgage repayments are affordable in line with the specific lender’s criteria in addition to passing all the normal checks.
At the end of the day mortgage lenders assess your application based on risk: “Will you be able to afford the repayments?”. When searching for a new mortgage deal to buy your new home or remortgage your old one, the benefit of using a mortgage broker who can compare and contrast the various Lenders could make your life a great deal easier.
For help understanding self employed mortgages please also visit YouTube, Facebook or make an enquiry via the website where the team and I will be happy to help you prepare for your mortgage application by giving you a clear picture of where you are now vs where you want to be.
You should contact a mortgage broker for personalised advice for your specific circumstances. Please also ask us for a personalised illustration
Active Brokers Limited is authorised and regulated by the Financial Conduct Authority and is entered on the Financial Services Register (http://www.fca.org.uk/register) under reference 488342.
We charge a fee of up to 2% of the amount borrowed which is payable on application of the mortgage. The fee charged is dependent on your circumstances.
Your home maybe repossessed if you do not keep up repayments on your mortgage.