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What is a Self-Employed mortgage?
There is no such thing as a Self-Employed mortgage, you will just need to prove your income through providing accounts. You have access to the same products as PAYE employed people if you are Self-Employed, the difference is in how you prove your income.
How will your Self-Employed mortgage application be assessed?
Lenders want to know that you can afford to make the repayments on your mortgage and will look into your credit rating and bank statements. You will need to provide at least two, more than likely three yearly accounts in order for a lender to assess your reliability when it comes to borrowing.
The way that you will be assessed will depend upon the type of self-employment. There are typically three categories of Self-Employed, Sole Traders, Partnerships and Limited Companies.
If you prefer to work alone, you should declare your earnings on a self-assessment form through a qualified accountant. Your tax will then be calculated by HMRC and you will need an SA302 form to outline your total income and tax paid. You will need two or three years’ worth of these accounts to give alongside your mortgage application.
Partnerships will require you to provide the figure of your share of the net profits alongside proof as well as any retained profits. Some lenders will not factor in retained profits so ensure to check the lenders criteria.
A mortgage lender will require to see your Director’s salary and any dividends received and stated on accounts or references.
How much can I borrow?
The amount that you are able to borrow from a lender will greatly rely upon your own current financial circumstances and history. A mortgage lender will look into your credit history and if you have a good credit rating you can typically access up to five times your annual salary.
There are specialist lenders out there who can and will cater towards the Self-Employed even those with bad credit ratings, but they can be hard to find. It would be worth getting in contact with a Mortgage Broker if you do not know where to begin or do not have the best credit.
What deposit will I need?
You should be prepared to provide at least 10% of the property’s value in the form of a deposit. If you are a First Time Buyer or purchasing a new build then you can use Government schemes to access the lower deposit option of 5% of the property’s value.
The more of a deposit that you can provide upfront to a lender the better! Lenders are more likely to give lower rates and discounted rates if you can give them more capital upfront before moving into the property.
How do you improve your chances of being accepted by a Lender?
There are some things that you can do to try and boost your chances of being accepted by a mortgage lender. You should apply at the right time, ensure that your credit is in order and try to provide as much of a deposit as you possibly can.
Apply at the right time
If you are Self-Employed you will be asked to provide between two and three years’ worth of accounts. You can find specialist lenders if you do not have three years however it can be worth waiting to apply for a mortgage to access the best rates you can.
If you have outstanding debts to pay it would be worth trying to get these in check before applying for a mortgage. If you have a lower credit score you could miss out on lower interest rates.
Ensure your credit is in order
Make sure that your details are up to date on the Electoral Register and you have closed any unused accounts or credit cards. Make sure to pay off any debts that you owe and that you are keeping up to date with your monthly outgoings.
Your credit can have such an impact on the amount that you can borrow so it is important to have it in order before applying for a mortgage.
Provide as much of a deposit as you can
The bigger the deposit that you can provide – the better. If you can give a bigger deposit upfront you are more likely to sway a lender towards accepting your mortgage application.
Every mortgage lender is completely different and will have different criteria to fit. It is important to make sure that you look into the requirements from your lender before making your application.
How can a Mortgage Broker help?
A Mortgage Broker can help you find the right mortgage for you. There are so many different lenders and mortgage products out there and it can be quite daunting, a broker knows the mortgage market and can access lenders which you may not be able to find.
Mortgage advisers will also help you prepare the documentation you will need to apply for a mortgage. They deal with a range of clients on a daily basis so can cater to fit any sort of need! Brokers are authorised and regulated by the Financial Conduct Authority meaning they are qualified to give you the advice that you require.
It is important to make the right decision for your financial circumstances as if you do not keep up with your mortgage repayments then your home may be repossessed. It is not worth getting into this situation by applying for something you cannot afford.
There is nothing worse than hearing a no and too many of them can actually damage your credit rating! Get in touch with a member of the team today to start your journey into your future.