Mortgages and the Self-Employed

Posted on August 25, 2011

The number of people working for themselves, or on a contract basis, has risen significantly in the UK in recent years.

If you are self-employed and looking to borrow money towards a property purchase, it may be wise to seek assistance from a mortgage broker to guide you through the process, especially as lending has become more difficult in a post ‘Credit-Crunch’ environment.

A broker will be able to ascertain the most suitable mortgage for your circumstances, indicate what level of deposit the lender requires you to put down and what supporting evidence of earnings you will need to validate. They can also sometimes access products not available to borrowers on the High Street.

If you are self-employed, you must make sure your finances are in order before making a mortgage application. Your personal/business accounts & bank statements may need to be provided and you may also need to enlist the services of an accountant, to verify your individual or company earnings, so preparation is key to avoid disappointment.

Typically deposit levels should start at 10%, but to obtain the most competitive rates in the market and wider choice of lenders, then you should aim to put down a larger deposit ie 15-25%. You normally have to show at least two years’ tax statements or company accounts signed off by a qualified accountant (you’ll be assessed on profits) and some lenders may demand three years’ worth.

Lenders will typically take an average of the last 2 years earnings; others will work on the most recent year, provided your earnings have increased. In some cases, lenders will accept one year accounts with a further accountants projection for year 2, but a larger deposit of 25%+ would be needed for this to be considered.

Useful tips:

-Preparation of supporting documents
-Seek advice and run your scenario through with an expert
-Save a deposit
-Be prepared to be flexible
-Do your sums before committing to borrowing

No guarantee can be given that the information provided is accurate in the present or the future. It is not intended to constitute either a statement of applicable law or financial advice, and responsibility cannot be accepted for any subsequent loss following activity or inactivity by any individual or organisation. Indeed, such information should NOT be acted upon without first receiving appropriate and specific professional advice.