The Office for National Statistics (ONS) has stated that almost five million people – or 15% of the labour market – now class themselves as self-employed. Many more are joining them.
It’s easy to see the advantages. One in five earn up to £1,500 a week, while in some sectors a week’s work can be worth as much as £5,000. But there are no guarantees of work, income can just dry up, and the health insurance, paid holidays, pension plans, or other benefits employees take for granted are just not there. Some forms of credit can be hard to get – and this can include mortgages.
We look at how you can still buy your own home, even if you don’t have a traditional job.
You can get a mortgage if you are self-employed
Contrary to common belief, it has always been possible to get a mortgage if you are self-employed. The process used to involve self-certification, which basically allowed self- employed applicants to state the level of income their work brought in.
This was unfortunately misused by some people, who found themselves with mortgages they could not afford when the financial crisis struck. For a while tighter credit controls made getting a mortgage difficult, until banks, building societies and a new raft of specialist mortgage lenders began to recognise the needs of the self-employed, and the fact that they were ignoring a huge potential market.
Lenders have begun to tailor their borrowing criteria to the needs of the sector. According to the Council of Mortgage Lenders, it has led to an 11% increase in the loans taken out by self-employed workers in 2016 alone.
The process you need to follow
The process of applying for a mortgage is a little more complicated if you are self-employed than if you are an employee, but the same principles apply. The lender will want to know that you will be able to repay the loan, and so will want to see evidence of income. An employee simply needs to provide a few payslips as the basis of their application. If you are not an employee, you may need to provide rather more in the way of documentation to give the lender the same level of confidence.
In particular, lenders will want to see how you receive your income, especially if it is from multiple sources, so it is vital you have all of the relevant documents, starting with an up-to-date record of your audited accounts.
You will need a minimum of one year’s worth of accounts, and most lenders will ask for verification. This could be a qualified accountant’s reference and finalised accounts. It can help if you also get HMRC evidence of your earnings for the last 4 years‘ by downloading an SA302 form. You can find more details here.
What else you may need will depend on the way your self-employment is organised.
Along with details of your contracting history, lenders will want to ensure you will also have work in the future. Evidence that your contract will be renewed, a minimum number of months left of the existing one, or a new agreement with another employer will normally be required.
If you are registered as a sole trader, lenders will want to see verification of your business profits when assessing your income. Details of your business, and business accounts will be useful, and the SA302 will be very important.
If you operate through a limited company, you will probably receive most of your income as dividends, in addition to your basic salary. You need to make sure your mortgage advisor understands this and takes both into consideration when assessing mortgage affordability. Make sure you include details of your business with your application.
Getting a mortgage can always be easier if you have professional advice, and it can be essential if you are self-employed. There are some lenders who are particularly receptive to self-employed applicants, there are even those who can help if you have adverse credit history, perhaps when business problems caused a hiccup in loan repayments.
A mortgage advisor can find the most sympathetic lenders, and search them for the best rates. Of course, the best mortgage deal is not just about the headline interest you pay. Their expertise will help them look at all the charges, arrangement fees and other costs to ensure you really are getting the best deal.
To get a mortgage expert working to help you get the mortgage you want, whether or not you are self-employed, simply call us at Continuum.
Your home may be at risk if you do not keep up repayments on a mortgage or other loan secured on it.
Office of National Statistics – UK labour market – November 2017
Office of National Statistics – EMP14: Employees and self-employed by industry – November 2017
Office of National Statistics – The number of individuals and the percentage of the self-employed population, by banded self-employment income, 2015/16, UK – March 2017