Top Tips for Self-Employed Workers Applying for a Mortgage
Over the last 15 years, the number of workers who class themselves as self-employed has risen significantly. Self-employed workers now make up nearly 16% of the UK workforce.
Technology innovation has meant that a diverse range of professions have more flexible methods of working which do not require people to physically be in a specific office to carry out their work. Increased emphasis on work/life balance has in turn led to the conventional working hours of 9 till 5 becoming less of an expectation.
This group of contractors and freelancers are making a more significant contribution to the UK economy than ever before. Along with this, the self-employed tend to be more prudent financial planners. Research has found that more than four in ten (42%) self-employed respondents said that they would be able to sustain themselves financially for six months or more if no new business came in. This is in comparison to just 32 days for the average employed UK worker if they were to lose their job.
Unfortunately, many lenders still haven’t caught up. Traditionally mainstream lenders have been unwilling to lend to self-employed workers due to their irregular source of income. Automated credit scoring tends to offer a ‘computer says no’ response as it incorrectly labels these individuals as high risk. This can make the task of applying for a mortgage feel rather daunting if you’re self-employed.
This is where mortgage brokers can prove invaluable. Mortgage brokers have knowledge of specialist lenders who manually underwrite on a case by case basis to assess affordability.
Before you visit your mortgage broker, it’s a good idea to do a bit of preparation as this could significantly improve your chances of securing a suitable deal.
Scrutinise all your expenditure
It is not just your business expenditure that comes under scrutiny when applying for a mortgage. Your personal spending habits will also be looked at when assessing affordability.
The first important step is to review your own personal finances going back at least 3 to 6 months before applying for a mortgage.
Look at your lifestyle choices and see if there are any spending habits that can be changed. Are there any memberships/subscriptions that can be cancelled that are not really used anymore, even if just temporarily? Could you cut down on takeaways and eating out for a while? It’s surprising when all these seemingly little outgoings are added up how much they can reduce your expenditure.
If there is any way you can reduce or pay off any outstanding credit commitments, then this will help too. Sometimes it may be worth waiting a few months after you have made these changes before applying for a mortgage as there’s a much greater chance of securing a satisfactory mortgage deal once your personal finances have improved.
Mixing business with pleasure
Many self-employed workers run their businesses as sole traders and therefore may not a have a separate business account. It is in this scenario that it is even more important to review your personal expenditure carefully.
Make sure you keep accurate records of your cash flow and expenditure along with supporting documentation such as receipts and invoices. Having detailed and through documentation to give to your lender to support your application can make a huge difference to your chances of a successful application.
Preparation is key
As already mentioned, having the appropriate and clearly presented supporting documents is essential. Your mortgage broker will be able to help you understand the exact requirements of a lender, but there is no harm in doing a little research in the months leading up to your application to see what documents are required. Forewarned is forearmed, and this way the mortgage application process will be able to run as smoothly as possible.
For example, lenders usually need proof of ID, voters roll address and proof of income. Acceptable proof of income varies but commonly requires at least 12 months’ worth of the latest accounts or an SA302 form supported by the most recent 3 months bank statements. An up to date credit report is also crucial.
Speak to a mortgage broker
It can be very disheartening to get a rejection from a lender, but this does not mean there is no hope of finding a mortgage elsewhere. Even if you have been rejected by a mainstream lender, there are other specialist lenders who look at each application on a case by case basis and are more likely to grant a mortgage to the self-employed.
The majority of specialist lenders are, however, only able to be accessed by speaking to a financial advisor. If you seek the advice of a mortgage broker, they will be able to assess and access the thousands of products that are not available on the high street.
If you would like some independent, impartial advice on securing a mortgage whilst self-employed, speak to one of our friendly, qualified advisors who will be able to steer you in the right direction.