7 tips for self-employed mortgage hunters
PUBLISHED: 12:25 11 February 2016 | UPDATED: 12:25 11 February 2016
Leading homebuilder David Wilson Homes has compiled seven useful tips for self-employed people looking to secure a mortgage, following news that one person in every seven currently working in the UK is self-employed.
Figures recently released by The Bank of England estimate that 700,000 more workers are self-employed today than in 2008, a rise from 3.8 million to 4.5 million people who are working for themselves.
Karly Williams, Sales Director for David Wilson Homes North Thames, said: “We have noticed a rise in the number of self-employed homebuyers looking to purchase one of our homes, and we would encourage homebuyers who work for themselves to make sure they are mortgage fit. Although self-employed workers have traditionally been seen as a minority among homebuyers, some mortgage lenders can be willing to offer them financial support and help them find the right mortgage for them.”
Independent Mortgage Adviser Brendan McDonnell from Torc 24, explains, “A mortgage is often the biggest purchase a person will make in their life, and people working for themselves who are looking to get on the property ladder should make every effort to ensure they are in the best position possible when applying for one.We would urge self-employed home buyers to take these seven practical steps to make the application process as swift as possible, and to increase their chances of being approved for a mortgage.”
Know your employment status
Make sure you know your status before applying – some mortgage lenders may classify you as self-employed if you own more than around 20 to 25 per cent of a business, even if you consider yourself to be employed. Are you a sole trader, a partner or a director of a company?
Keep track of your accounts
Most lenders require two or three years’ worth of your business accounts. You need to keep them up-to-date, as many will not accept them if the most recent are more than 18 months old. Try to use a certified or chartered accountant. Some lenders will accept as few as one year’s accounts if you have substantial savings and a good credit record.
Be good to your creditors
Your accounts will contribute towards part of the decision on whether you are eligible for a mortgage. Your credit record is also vitally important. You must prove that you are worth the risk - and having an excellent history of repaying loans is one way of demonstrating that.
Save if and when you can
It never hurts to have a sizeable deposit saved and ready to use - particularly if you have less than two years’ accounts to offer. If this is not possible, all is not lost. You may still be eligible to make use of Government-funded schemes - like Help to Buy - allowing as little as five percent deposit on new build homes up to £600,000 in England.
Be realistic about what you can afford
Due to recent changes, borrowing more than you can reasonably afford is far more difficult to do for any type of buyer these days. However, you should factor in the possibility of a downturn in your business fortunes - just in case.
Don’t switch before applying
Making last minute changes to your self-employed status - for example, from sole trader to limited company - prior to applying for a mortgage is not recommended. It may cause confusion and prompt a delay in approving your application.
Seek out advice
There are many types of mortgages available to choose from for self-employed buyers, but it is important to take expert advice before making that choice.