BLOG: Mortgage conundrum faced by the self-employed
With Government initiatives making starting a business ever more accessible, it is no surprise that by the end of 2013, 500,000*** new businesses were registered in the UK.
Despite the Government encouraging the changing workforce and making it easier to start up a business, being self-employed can often throw up a number of financial obstacles that can be tricky to overcome, and one of the biggest is accessibility to mortgages.
In comparison to those on PAYE contracts, self-employed people are often asked to provide a lot more information and extra detail on their earnings history when applying for a mortgage. It is typical that lenders will ask for either a two or three year track record of employment, which can be difficult, especially for newly self-employed individuals.
On top of all of this, some lenders average self-employed applicants earnings over a three year period, sometimes making the income seem a lot lower than they are currently experiencing – this is typical for people who have experienced a slower first year. This can result in lower loans being offered to the self-employed. The perplexing thing is that self-employed people (from a credit risk perspective) tend perform better than employed people when it comes to mortgage payments- so why are freelancers and the self-employed being discriminated against?
To combat the hurdles that self-employed and freelance workers face more and more specialist lenders are looking for solutions to the problems and there are some simple steps that consumers can take to help when it comes to the time to apply.
• Make sure all your paperwork and accounts are up to date and in order
• Hire a chartered or certified accountant to prepare your accounts and tax returns, lenders often prefer if they have been completed by a professional
• Obtain a SA302 (personal tax calculation) prior to your mortgage application – they often take a few weeks to come through so make sure you apply early
• Search away from the high-street for a specialist lender that can cater to your individual circumstances
• Speak to a broker or an independent financial adviser about the different options available; they will also have access to the rates offered by specialist lenders
The changes that have been put in place since April 2014 with the MMR mean that all lenders need to have skilled underwriters who can read financial accounts and understand the self-employed market.
At Precise, we have made a number of improvements to our lending criteria across our whole range of mortgage products to make them a lot easier for self-employed people to access. We now ask for just one year’s financial accounts from self-employed people; even if they have been trading for three or more years, and we use the latest year’s financial accounts to calculate how much we will lend.
We would recommend that all self-employed applicants and freelancers look to an IFA or mortgage broker instead of trawling up and down the high street to find the best deal.