Is it harder to get a mortgage when you’re self-employed?
It’s a question we get asked quite a lot and the most simple answer is that it’s not necessarily more difficult, but the way in which affordability is assessed by prospective lenders is inevitably a bit different.
In the end, there are a few simple things that you’ll need to remember and to bear in mind if you work for yourself and you want to change your existing mortgage arrangement or increase your borrowing to move home.
There’s no such thing as a self-employed mortgage
Mortgage products designed specifically for people who run their own businesses, either as a limited company or a sole trader, don’t exist. Whether you’re in a salaried job with an employer or you’re working for yourself, you’ll be applying for a standard mortgage product just like everyone else.
That means you’ll be subjected to exactly the same strict affordability tests that every regulated and reputable lender applies to every loan application they receive.
So far, so much the same. So, if the products and the affordability tests don’t change, what does?
One obvious difference is the way in which your income is measured. The other is in the fact that you’ll have access to lenders who may specifically cater for the self-employed market and may therefore offer more flexibility when it comes to how they apply their lending criteria.
Assessing your income
If you’re in full-time employment and receiving salary, lenders will typically want to see a certain number of payslips going back over a prescribed time – usually 3 to 6 months, depending on the lender.
Some people who are self-employed do pay themselves a salary through their company, but more often than not this isn’t the case.
If you don’t receive a regular salary, then in order to assess your income for repayment purposes, lenders will instead want to see net income or dividends detailed in 2 years of company accounts prepared by an accountant (if you operate through a limited company) or 2 years of tax returns (if you’re a sole trader).
Some lenders do accept financial information reflecting only 1 year, but they’re in a minority.
If you’re a contractor, then a lender is likely to look at the value of your current and previous contracts, your experience and your professional history in order to reach a lending decision.
In most cases, the income you show in this way will be averaged out, although if you show income increasing year-on-year over time some lenders may use the most recent year for the basis of assessing affordability.
Might my age count against me?
The term of the loan (in other words, how long you want to take to pay it off) may be an issue for some lenders.
The most recent data from the Office for National Statistics suggests most self-employed people retire later than their peers who are in full-time employment. Factors that drive this include pension value and the fact the same data suggests entrepreneurs opt for self-employment much later in life – and so require longer to build their businesses.
There’s no statutory upper age by which you must have repaid your mortgage loan, but typically most lenders would need to give special consideration to any application for a mortgage that went beyond the age of 75 or 80.
Why use a mortgage broker to help you apply for a mortgage if you’re self-employed?
The key benefits of using a professional mortgage broker like Oportfolio are that we have existing relationships with lenders and we often have access to products you won’t be able to find for yourself online or on the High Street.
What that means in practice is that we can identify the lender and product most suited to your needs now and in the future.
Because we’re mortgage experts, we can also take the guesswork out of what information you need to provide, reducing your stress and hopefully making the process a little bit more efficient.
The long and the short of it is that all things (and especially affordability!) being equal, people who work for themselves have just as much chance of getting a mortgage as anyone else – but it takes understanding and organisation.
To find out more about our friendly and professional mortgage service, fees and what we can do to help make sure you’re not paying over the odds for your mortgage, why not visit www.oportfolio.co.uk or give us a call on 020 7371 5063.
Your property may be repossessed if you do not keep up repayments on your mortgage.
Oportfolio Ltd fees are payable on application. We charge a broker fee for property purchases of £495 and a remortgage/further advance fee of £395. Our product transfer fee is £295.