The 2008 financial crisis came close to wrecking the global economy, ruined several banks, and made it much harder to get a mortgage.
Unwise mortgage lending in the US was one of the root causes of the crisis, which saw credit reined in around the world. Banks and building societies became risk averse and some types of mortgages were abolished altogether.
One of these was the self-certified mortgage. Self-cert allowed borrowers to arrange a mortgage virtually just by stating what their earnings were. They were open to misuse and exaggeration, and even sometimes referred to by the cynical as the ‘liar’s mortgage’.
Unfortunately, the self-cert mortgage was the answer for anyone self-employed. Having no employer or regular payslip, self-certification was the simplest way to meet affordability requirements.
As a result, many self-employed people thought they were nonmortgageable.
The good news is that just isn’t true.
The taxman to the rescue
Many aspiring homeowners in the UK still believe being self-employed makes it near impossible to secure a mortgage.
Their sentiment is that lenders will only lend when you have a trail of payslips showing regular income.
The fact is that many lenders often accept just two years of certified accounts or HMRC tax calculations from self-employed applicants — and some even consider applicants with only a single year’s financial documentation.
In other words, the taxman’s strict scrutiny and unimpeachable probity actually works in your favour. He will vouch for you.
Lenders are still careful. They want to be sure that they will be paid back. But they do recognise that self-employment incomes can be irregular.. As long as your overall income appears to meet affordability criteria, they may be open to discussing options with you They will look at your tax records, and talk to your accountant, but the mortgage industry has adapted to better accommodate self-employed individuals.
Discovering that an application is from someone who is their own boss no longer means an automatic rejection from most lenders.
Lenders increasingly recognise that the world of work has changed. There has been the rise of the gig economy since the COVID-19 pandemic. There have been new styles of working. Even income streams with part employment alongside self-employment may be taken into account as part of an income assessment.
So how do you get a mortgage if you are self-employed?
These days, if you are self-employed, getting a mortgage offer is a little more complicated than it is for an employee. Most high-street banks, along with specialist mortgage providers, offer tailored products that recognise the realities of self-employment income. Lenders usually require proof of income over a period of one or two years. This proof could include
- Certified or audited accounts by a qualified accountant (most often two years, but sometimes one)
- HMRC Self-Assessment tax calculations
- Bank statements illustrating income and expenditure flows
They also have a more flexible approach than they had in the past. They will often look at income averaging over these years. If income fluctuates, rising earnings can bolster applications, although signs of declining income may impede them.
If your earnings vary dramatically, lenders may take your lowest earning year as a baseline for what you can afford to borrow. Some may even be willing to take an annualised figure from your day rate.
Supporting evidence, like ongoing contracts or invoice histories, can further strengthen applications. If your self-employed career is going well, your mortgage application could too. Like any other applicant, it helps to have a good credit score and an unblemished credit history, but even the odd slip up may not always be a red flag.
Getting some help
Being a ’non-standard borrower’ may not be a barrier to getting a mortgage, but it may make the application a little more complicated.
At Continuum we know the lenders who are most receptive to self-employed applicants, and we can work with you to find the most suitable from the entire market. There may often be some great deals available from specialist lenders who are not on the high street, and which can be hard for you to find without a little help.
Once we’ve found the most appropriate deal for you, we can help you with the application.
So, self-employed and looking for a mortgage or even a remortgage? Make it your business to call us today.
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to a particular mortgage product and you should seek independent financial advice before embarking on any course of action.
Your home may be repossessed if you do not keep up repayments on your mortgage
The Financial Conduct Authority does not regulate taxation advice.
