Self-employment is on the rise
Self-employed workers in the UK has risen from 3.3 million people in 2001 to 4.8 million in 2017. The self-employed now account for 15.1% of the working population driven by technology and the economy.
However the self-employed often find it difficult to access the mortgage types they wish and is very frustrating considering the earning capacity of this group.
Specialist knowledge is the key
Mainstream lenders do lend to the self-employed but the lending criteria is often more rigid than other lenders who do specialise in providing a better understanding of this group of workers.
It is therefore important obtain advice on those specialist lenders that are able to understand how the self-employed are paid and in sometimes quite complex cases. They are therefore in many respect better placed to be able to assess people as individuals and provide a mortgage product to suit the induvial.
Being approved for a Self-employed mortgage
There are a number of important steps that should be considered by the self-employed in preparation before making an application to a lender.
- You should be using a certified or chartered accountant or a professionally qualified practitioner as lenders will often not be likely to accept income confirmation from any lesser source.
- Previous Tax Year HMRC’s assessments and confirmations if HMRC SA302 forms are not immediately available as they will need to be provided at an early stage.
- Depending on the length of the period of self-employment it will help identify which lenders are more helpful in understanding the type of employment being engaged. Where an applicant has only been employed for a short period of time (12 months) the accountant will need to provide a set of finalised accounts for the first year and also be required to provide a proper projection for the current financial year.
- Should accounts show a variance of profit and loss over the years an explanation will be needed to be provided to the lender so be prepared to explain matters as they may be simply based on seasonal effects on the type of business. An accountant may be able to assist in explaining how this may be interpreted and provide a letter to that effect.
It is not just the accounts but how the business is made up having both tangible and intangible assets and evidence of positive net worth. This can be a crucial element in understanding and appreciating the assets versus liabilities and can help considerably in getting an approval in support of any income history.
Should you be regarded as a fixed term contractor rather than someone who is full self-employed then a contractor’s daily or contracted rate can be accepted as a guide for expected salary but may be subject to interpretation by the lender.
It is clear here that it is very important to have the proper and required information to hand early in anticipation of the next stage, namely the advice from your mortgage adviser. The direction and advice to be given regarding which lender will be most suitable for your needs will benefit from that preparation considerably.
Speak to a financial adviser and see if this information may work for you.