There is a common belief that securing a mortgage as a self-employed individual is exceptionally difficult. Many feel discouraged and pessimistic when considering this financial goal. However, the truth is often more positive. Many excellent mortgage options exist for self-employed individuals who understand how to approach the process effectively.
A Realistic Perspective
The number of self-employed individuals in the UK has grown significantly. However, some lenders still maintain stricter requirements for assessing self-employed income compared to salaried applicants. Fortunately, the majority of mortgage providers now welcome applications from self-employed individuals. At Cornerstone Finance, we have the expertise to guide you towards a suitable solution.
Key Considerations for Self-Employed Mortgage Seekers
If you’re self-employed and seeking a mortgage, it’s important to understand a few key points. Firstly, you’re not alone—the UK has approximately 4.3 million self-employed workers. This significant number reflects a strong demand for tailored mortgage products. Lenders now recognise the unique financial circumstances of self-employed applicants, which is why specialised products exist.
That being said, identifying the right mortgage can still be challenging. Researching available options and determining what best suits your needs is crucial. Before committing to any loan, ensure you fully understand the mortgage products available for self-employed individuals.
The Impact of Covid-19 on Self-Employed Workers
The Covid-19 pandemic has severely impacted the financial stability of many self-employed individuals in the UK. According to the University of Liverpool, incomes for self-employed workers dropped significantly during the pandemic, with many businesses still struggling to recover. Even as the UK adjusts post-vaccination, the economic challenges for self-employed individuals remain considerable.
What are the obstacles?fbrok
In the midst of adversity, many self-employed individuals fight back with unique solutions. Take Ivan, a freelance videographer who decided to switch gears and offer virtual tours to real estate platforms. As a result, they can conduct property viewings, especially during the pandemic. These new approaches can help self-employed people reach an even broader client base while enjoying the freedom and flexibility of freelancing.
Self-employed people may be pessimistic about their future home-buying prospects due to this challenging moment, but some choices can help. Obtaining assistance from a broker with broad market knowledge and the ability to look into speciality lending possibilities is critical. These lenders can delve into the details of an applicant’s income streams, potentially removing traditional roadblocks to obtaining a mortgage.
We’ve put together six top tips if you’re self-employed and looking to get a mortgage
Consider using a broker
Buying a home can be complex, but an experienced broker can simplify the process and offer valuable advice. Brokers have access to the entire market, ensuring they find options tailored to your specific needs.
Provide two to three years of accounts
Most lenders require two to three years of accounts to verify a stable income. Post-Covid, it’s essential to show your business has recovered to pre-pandemic levels to reassure lenders of your ability to repay.
Demonstrate a consistent work stream
Lenders want proof of a steady work history to consider you a reliable borrower. Show evidence of ongoing and upcoming work to strengthen your application further.
Improve your credit score
Improving your credit score can enhance your mortgage eligibility. Actions such as registering to vote, paying off existing debts, and making timely payments can make a significant difference.
Save for a larger deposit
A larger deposit reduces your risk profile and improves your chances of securing a mortgage. Review your monthly budget to identify savings opportunities and consider fixed-term accounts with better interest rates.
Organise your financial records
Different lenders require specific documents to assess your income. Preparing your financial records in advance will save time and ensure a smoother application process.
Preparing for a Self-Employed Mortgage Application
When you’re self-employed and seeking a mortgage, preparation is essential. Follow these key steps to improve your chances of approval:
1. Gather Your Financial Records
Ensure you have at least one year of accounts or tax returns ready. These documents should clearly show your turnover, tax payments, and overall financial health. Certified accounts can strengthen your application, so consider having your next set of accounts professionally prepared.
2. Provide Evidence of Tax Payments
Lenders often require proof of your tax payments to HMRC. Obtain your most recent SA302 forms and corresponding tax summaries. These documents include your “Tax Overview” and “Tax Calculations,” which are downloadable from HMRC’s website. Speak with your accountant if you need help accessing them.
3. Maintain a Clean Financial History
Avoid any potential red flags in your financial records. Lenders may be hesitant if they spot regular payday loan repayments, online gambling activity, excessive luxury purchases, or high credit card debt compared to your income. Keeping a clean financial history can reassure lenders of your reliability.
4. Understand Your Business’s Financial Position
Demonstrate a thorough understanding of your business’s financial performance. Familiarise yourself with key terms like “statement of comprehensive income” (previously known as P&L statement). A solid grasp of your financials can instil lender confidence in your ability to manage income effectively.
By preparing these financial details in advance, you increase your likelihood of mortgage approval. The Cornerstone Finance team is here to support you if you need advice or assistance.
Being Honest and Optimistic as a Self-Employed Mortgage Applicant
Securing a mortgage as a self-employed individual requires honesty and a positive approach. Some may feel tempted to overstate their earnings to qualify for a larger mortgage. However, this strategy is not advisable.
Lenders are skilled at verifying income claims. Any discrepancies between declared earnings and provided evidence can raise concerns. These inconsistencies might lead to a rejected application or classification as higher risk, resulting in increased borrowing costs.
There are excellent mortgage options for self-employed individuals, but not all will suit your circumstances. Discussing your needs openly with our friendly advisers at Connect Mortgages is crucial. We are here to help you find the right solution for your situation.
With our support, you can navigate the mortgage process with confidence. If you’re self-employed and seeking a suitable mortgage, contact Connect Mortgages today.
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