As the number of sole traders / self-employed people in the UK rises steadily, mortgage brokers are increasingly positive about taking on these clients, according to recent press reports. However, getting a mortgage as a sole trader / self-employed can be a little more difficult than for employees. Here is a look at how to maximise your prospects.
Lenders are traditionally more cautious about self-employed clients, because they don’t have a guaranteed steady income, and therefore are more at risk of not being able to meet repayments. This can be frustrating for those self-employed clients who are able to prove consistent, or growing earnings for more than 12 months.
It is important to remember that not all lenders judge clients by the same criteria, and some may have a great deal more flexibility than others. Therefore, just because you have been turned down once or twice, it doesn’t mean that you should give up.
Once you are accepted for a mortgage, the terms should not be any less favourable than for any other type of borrower, The Times explains. The major difference is the burden of proof required for your eligibility to borrow money. The lender will typically assess your salary, and also your outgoings, over a period of two years.
This is to reassure the lender that you can afford to make the mortgage repayments over a sustained period of time. If you are recently self-employed, and have just one year’s accounts, there are some specialist brokers who can advise you, and it is certainly not impossible to get a mortgage.
To make sure you are in the most positive position you can be to get a self-employed mortgage, The Times advises that you should check your credit score with a credit ratings agency, such as Equifax, Experian or TransUnion. Make sure that all the information is correct, and if your score is low, research ways that you can improve it.
Next, take a look at your spending. Lenders will probably ask to look at your bank statements to see what your outgoings are like, so cut back on impulse purchases, and cancel any subscriptions which you don’t really need. Try and set a firm budget for your weekly shop, and only buy clothes when you really have to.
Put any money you save through economising into your deposit pot. The higher the deposit you have, the better your chances of getting a mortgage. If you are aged between 18-39, look into the Lifetime ISA, which allows you to save up to £4,000 each tax year, and the government will top it up by 25%, if it is to be used to buy a house.
Keep up with your paperwork, complete your tax returns on time, and get a SA302 form, as lenders may want to see this. Many lenders also want to see accounts detailing your income, expenses, and operating costs, signed off by a chartered accountant.
If you are thinking of making an expensive purchase for your business, such as a van or computer, it may be best to hold off until after your mortgage application has been accepted, as this will affect your annual profits.
If you need self-employed mortgage advisors in Hounslow, talk to us today.
