Self-employed workers have always been given the short end of the stick where mortgages are concerned. For the UK’s approximately 4.3 million self-employed workers, getting on the housing ladder can be a challenge.
Major banks and high-street lenders in particular often want nothing to do with self-employed applicants. Elsewhere, those who consider applications from self-employed workers show no mercy where interest rates or overall borrowing costs are concerned.
Particularly in the wake of COVID-19, qualifying for a self-employed mortgage via conventional channels has never been more difficult.
Why is getting a mortgage as a self-employed worker so hard?
The process of applying for a mortgage as a self-employed worker via conventional channels can be complex and frustrating for three main reasons:
- Most lenders instinctively see self-employed workers as higher-risk applicants. Even if their job is stable and their take-home pay is high, they are still considered risky on the part of the provider.
- There are still no specialist self-employed mortgages available from most lenders. The overwhelming majority of mortgages on the High Street are designed with conventionally employed people in mind, making it difficult to qualify.
- Lenders have very different policies where proof of income is concerned. What you may consider to be concrete and irrefutable proof of your financial status may be worth nothing in the eyes of many conventional lenders.
All of which paints a pretty gloomy picture for self-employed workers looking to buy their own homes. But this does not necessarily mean that you are completely out of luck.
Essential tips
As is the case when applying for any type of mortgage, it is essential to adopt a strategic approach. There are steps any self-employed person can take to significantly boost their likelihood of qualifying for a mortgage.
The most prominent examples are as follows:
- Prove your income beyond a reasonable doubt.
Copies of bank account statements and such are of no consequence when applying for a self-employed mortgage. Instead, your lender will expect to see proof of your earnings in the form of your tax returns and general financial projections.
You should be looking to provide evidence of income from at least the past few years. You can get copies of your tax returns from HRMC online or request that they be posted to your registered address.
- Get yourself a good accountant.
Having a chartered accountant on board as a self-employed business owner is highly recommended. This alone can open a lot of doors on the High Street and elsewhere, as small businesses represented by reputable accountants are always considered safer.
There are many lenders who only consider applications from self-employed workers that are formally stamped and signed by a registered accountant. This can be the best way of adding weight to your application and showing the lender that the figures on your documents are complete and accurate.
- Work on your credit score.
While this can be effective in supporting your application, it is rarely a short-term solution. Instead, it may take weeks or months to begin steering your credit score in the right direction. Something that can be done by paying off existing debts, tidying up your old bank accounts, ensuring you do not go overdrawn, and so on.
Before applying, check your credit score with the major credit agencies and make as many quick fixes as you can.
- Offer a larger deposit.
Offering the lender a larger deposit is also guaranteed to work in your favour. Along with boosting your likelihood of being accepted for a mortgage, a larger deposit can also pave the way for lower interest rates and more competitive borrowing costs.
Most major lenders will only accept self-employed applicants who are able to provide at least 15% or 20% by way of a deposit. If you are able to increase this to 25% or 30%, your application is far more likely to be accepted.
If you would like to learn more about self-employed mortgages or have any questions regarding your eligibility, we would be delighted to hear from you. Call or e-mail anytime for an obligation-free consultation with a member of our team.