In the past, finance has been a fairly conservative business and the self-employed have had a relatively harder time finding the mortgage to suit them. Thankfully, the mortgage market has become far more competitive and there are now plenty of lenders just as eager to advance mortgages to the self-employed as anyone else.
For anyone making you a loan, their most important criterion is going to be your ability to repay that loan. In the absence of a regular income seemingly “guaranteed” by an employer, the self-employed need to convince the lender they can afford regular repayments over the term of a mortgage.
So, what does this convincing take? Ideally, the mortgage lender would want to see three years of your audited business accounts, though for some two years might suffice. It could be, however, that you simply haven’t been running your business for the past three years and, in that case, you should be able to persuade the lender to take a letter of confirmation from your accountant. If you don’t have an accountant, or if the net earnings from your business suggest a lower disposable income than what you think you can afford, there still remains the alternative of a “self-certification mortgage” (in which you are simply certifying that your earnings will be sufficient to cover the mortgage repayments).
The point to all of this is for the potential lender to assess his risk in advancing you the mortgage. If you’re unable to present three years of accounts, which are likely to give the lender the ideal picture, then you’ll probably need to take on a larger share of the deposit on the home you want to buy.
You may also discover that some lenders employ complicated credit rating methods, where they look at your earnings and all your outgoings. This will take into account the fact that every potential borrower has a unique set of personal circumstances and commitments. Those with teenage children and multiple financial commitments, for example, will not be able to afford to borrow so much as a single person on the same income.
Keep in mind that any lender is most interested in your ability to make monthly repayments over many years. If your self-employment is in a sector of the economy you’ve been involved in for several years, then this is going to help the lender complete the picture with confidence. Conversely, if you are a newcomer to your chosen area of self-employment, you might have to wait until you can show you’re making a regular income. Even though you might question whether the lender really is familiar with all the factors that will make your self-employed business a success or not, the lender will nevertheless be making some sort of assessment on the financial viability of your business and the goods or services you deliver.
When you have satisfied a potential lender that you are an appropriate mortgage risk, there’s really no restriction on the exact type of mortgage that should be available to you (though a “flexible mortgage”, which accommodates more stopping and starting of payments, is especially tailored towards the self-employed).
While it’s a competitive industry and there will be many lenders now eager for your business, however, always remember that some will offer better rates than others for more or less the same products, some might be prepared to lend you a larger mortgage, and others might expect you to find a bigger or smaller deposit on the property.
The key facts to remember are:
- If you don’t have three years’ business accounts, you can still get a mortgage by going down the self certified route
- Build up a big deposit – the bigger your deposit, the more favourably you’ll be looked at by any potential lender
- Before signing up for any sort of borrowing, as with all financial commitments, do ensure that you will be comfortably able to meet the repayments
- Confused.com have a quick and easy to use search tool that allows you to see what mortgages are available for the self employed