There are many, many wonderful things about being self employed; but when it comes to mortgages, sometimes it feels like those legions of employees with their PAYE forms have it easy. Alright, so they have an unpleasant boss and difficult co-workers – and if they want time off, they have to ask – but they can stride into their mortgage broker’s office with their head held high, confident that their uncomplicated payslips will see them home and dry.
For the self employed – or so we are led to believe – it is a very different story. It is true that the spectre of the financial crisis ushered in a period of tighter regulation, notably the Mortgage Market Review (MMR) of 2014. Stricter affordability checks have made it harder to get through the early stages of the process, and the thought of endless wrangling in a losing cause is enough to put off even the most battle-hardened applicant.
That said, it is by no means impossible. If you have been trading for at least three years, and have two years of audited accounts demonstrating a profit, you’re off to a good start. If not, don’t despair.
The key is to get in touch with a mortgage broker, who will be able to help you navigate the twists and turns of this complex and often frustrating market. This is important for a couple of reasons; firstly, the amount you can borrow and the way it is calculated depends on the lender. Engaging an experienced hand who knows exactly who to approach is the only way to find the best deals. Secondly, a broker may be able to structure a deal in spite of a bank’s post-MMR rigid, limiting criteria.
At Enness, one of the things we are asked about most is self employed mortgages, and we have buckets of experience in this sector. Here, we set out some of the key considerations for you as you begin your application. And if you ever catch yourself casting envious glances towards friends and family with straightforward income structures, remember: they have to take the tube at rush hour.
The market has contracted
A long time ago in a faraway land, there was such a thing as a self-certification mortgage. Borrowers did not have to provide proof of income to the lender, which was particularly useful for anyone self employed. Unsurprisingly, these were abused and thus banned in 2011 during the post-crash fallout, and so this comparatively straightforward route is no longer available. What this means is that, for the self employed, the market has contracted. Overall, lenders are more risk-averse; but that’s not to say they aren’t still out there. The solution? Engage a good, independent broker to help you find the one that’s right for you.
Never say never
So far, we’ve assumed that you’re in an excellent position financially to secure a mortgage. What of those prospective borrowers with a short trading history? Or someone who has strong profit figures from the last year, but suffered a blip the year before? That is where Enness comes in. There are plenty of lenders who are sympathetic to rocky patches and complex structures, so please don’t think it’s a lost cause. The problem for most self employed people is finding access to them.
Lender criteria varies…
…hugely. Unfortunately, there is no easy table which tells you what exactly they ask for; but although this makes the process more complicated, it is a big advantage for anyone self employed. Depending on the lender, they may ask for any combination of supporting documents, including accounts, proof of income as derived from SA302s or tax returns. Sole traders will generally be asked for their average net profit figure over the last three years; limited company owners will have to provide their salary and dividends, or sometimes their net profit pre-tax. Although this may sound like a headache-inducing amount of paperwork, it means there is a degree of flexibility for anyone who can’t tick all these boxes at once.
It’s all about the right figures
Working with the right figures is crucial for securing the best self employed mortgage. It is a delicate art, a question of presenting you and your finances in the most favourable light without stretching the truth. For example, say you were the owner of a limited company who was minimising your income for tax purposes. If you can, it is sensible to draw a small salary from the company for this reason; but it can impact your ability to secure a large loan. In this case, a good broker would know which lender would be willing to accept your company’s net profit figure pre-tax, instead of looking at your salary. At Enness, some of our brokers have accountancy backgrounds, and are very experienced in pitching forecasted figures to the most suitable lender. They will look closely at your accounts and get to grips with the full story behind any anomalies before deciding on the best approach.
Access is key
As you may have gathered, this is probably the most important point for anyone self employed. Those who have had a bad experience often don’t realise that there are lenders out there who will be perfectly willing to lend to them; but the problem is they aren’t necessarily on Google or the high street. The good news is that we have access to all of them – and we have built up strong relationships with the decision-makers over the years, who we will always speak to directly to secure you the best self-employed mortgage possible.
We believe strongly in keeping our clients as informed as possible and we hope you have found this useful. For more details, please do have a flick through our guide library, where you will find in-depth, market-leading whitepapers on the mortgage process and specific product-related information – including on the best self employed mortgages.
If you have any questions about this article, or want to speak to a specialist broker about your options, please do get in touch.