A brief guide to self employed UK home mortgages

 

Traditionally it has been much more difficult to get a mortgage if you are self employed or cannot show proof of a steady income. However, recently more lenders have begun to offer self employed UK home mortgages. Rather than focusing solely on your employment history itself, they are looking at your employment potential; basically, how employable you are. This article offers a brief guide to mortgages for self employed workers looking to buy a property in the UK, discussing the problems they may face, solutions, how much they can borrow and what evidence they will require for this.

How much can you borrow?
Most lenders will allow you to borrow up to 75% of the value of the property. In special circumstances this may be extended to 90–100%, but this is not necessarily a good deal as it will cost you a considerable amount more. As a guideline, you can usually get a mortgage for three times your yearly earnings. Variations do occur, for example a couple may borrow two and a half times both of their annual incomes.

The amount you can borrow is calculated based on several factors. Many companies of financial specialists dealing specifically with mortgage advice offer an online mortgage calculator, which can be used to estimate an amount. Factors such as your credit history will be taken into account (including any debts) and often your current credit rating, which includes incomings and outgoings (bills etc). It is advisable to note that, just because you have been offered a certain amount, this does not mean you can necessarily afford it. You may just be able to afford the monthly repayments but then struggle to pay for other living expenses associated with running a home.

What evidence is required?
To obtain a mortgage you are usually required to show proof of income. This can be in the form of two to three years of audited accounts, or a letter of confirmation from your accountant if you haven’t been in business that long. It is useful if you can show regular work in the past, especially if you worked in one particular industry for several years. For those who have been on a temporary contract, it is sometimes necessary to show evidence of continued employment with one company, for example if your contract has been continually renewed over a period of one to several years.

First time buyers may also need to show that they have been paying rent instalments similar to the amount of the monthly payments of the mortgage they wish to obtain.

Self-certification mortgages
Some borrowers may face problems if they have not been keeping the necessary accounts to provide as evidence, or cannot produce these due to owning a start-up business. Others may have minimised their income by offsetting expenses against earnings, in order to reduce their tax. This will result in showing a lower amount (of income) than you are actually able to repay (and thus borrow). A solution to this is to apply for a self-certification mortgage. This will look at your yearly earnings, of which the lender presumes you will give a truthful and accurate figure. If proof of income cannot be provided, confirmation is usually required from your accountant that you can afford the repayments. Due to the higher risk this creates for the lender, a higher deposit is usually required. However, with increasing competition for your business, some lenders are now offering lower deposits.

Conclusion
Despite an initially bleak outlook, the situation for self employed homeowners looking for a mortgage is not as desperate as it used to be. Even first time buyers have options open to them. Self employed UK home mortgages are available for a variety of different types of mortgages, including a self-certification mortgage, which is often the most suitable option for those struggling to show proof of regular income. There are several forms of evidence you can use to do this, including certified accounts or a letter of confirmation from your accountant.

Various lenders will offer different deals, some with lower interest than others. It is advisable to do your research and compare companies to find the best interest rate and repayment deal for you.

The views in this article represent those of the authors and not those of Speaking Mortgages. This article does not represent financial advice and is purely editorial supplied by third party's. If there is information within this article which you wish to rely on then please check those details with relevant financial or other professionals prior to making any important decisions.