If you own more than 20-25% of the company that earns your main income, then you’re officially considered self-employed from a lending perspective. This is a great lifestyle choice that buys so much freedom, work/life balance, and job satisfaction that it’s now a go-to solution for as many as 4.2 million UK workers. Unfortunately, self-employed people also face some difficult realities, including sometimes patchy incomes and, directly relating to that, certain challenges to mortgage approval.
UK lending rules, requirements, and technicalities can certainly pave a complex path to your self-employed mortgage. However, by seeking out help and services from specialist brokers with an insider understanding of what these challenges are and how to overcome them, countless self-employed individuals in the UK still managed to gain approval for their dream mortgages every day.
Of course, even the best broker can’t make difficult mortgage decisions for you. Specialists in this field can, however, help you towards the knowledge necessary to answer the most pressing questions you’re likely to have about your chances at a self-employed mortgage, including:
When you have regular pay packets and an employer to back your application, preparing for a mortgage and meeting the criteria is a relatively simple affair that involves falling back on professional-grade paperwork you likely already have to hand. Unfortunately, things get more confusing for self-employed people who not only manage their own income but are also likely to come under more intense scrutiny during the application stages. With this in mind, preparing for your mortgage starts with knowing the basic rules and following some relatively simple steps that stand to make your life easier if you take them well in advance of any application, including:
A mortgage broker can especially help your chances of preparing for a healthy mortgage offer and understanding the lender criteria you should seek to meet so that you can help your case. When it comes to applying, lenders are then likely to want to see reliable and trustworthy proof of your income, including:
Generally speaking, the requirements for UK mortgage types themselves (e.g. fixed vs variable terms, etc.) are the same regardless of what you do for a living. That said, mortgage types do differ when it comes to one crucial factor – the evidence of income you’ll be expected to provide.
Preparing in the ways listed is your best possible way to ensure the most competitive mortgage rates and deals, but understanding the different types of self-employed mortgage, preferably with the help of expert advisors who can talk you through the criteria, requirements, variables and subsequent rules, can help to open up your options if you’re uncertain, or even if you’ve been working in a self-employed position for less than the preferable three years. Options here especially include:
How much you’re able to borrow determines not only repayment terms but also the size of property that you’re able to purchase. It’s especially worth noting that certain things will impact your borrowing capabilities when you work as a self-employed individual, and these include:
In each instance, our specialist advisors will help you to find the best solutions to ensure the best possible mortgage. Generally speaking, however, if you meet a lender’s criteria, your borrowing capacity will be determined by a close inspection of essential income factors including:
With 50% of self-employed borrowers worrying that they won’t be treated fairly in their quest for a mortgage, potential obstacles to acceptance can cause many nights of lost sleep, and can even prevent self-employed people from seeking property purchase in the first place.
In reality, making sure to prepare for and understand your options is the best way around that issue, and is best achieved with the services of our expert mortgage brokers online who can offer advice and help you to understand a realistic comparison of your requirements and options. An expert mortgage finder will also help you to understand the barriers that stand in your way and provide the solutions as to how you can work around them. Most commonly, of course, these will include considerations like income and term of self-employment, and finding ways around them includes:
How much can you borrow?
In the past, lenders would use a simple calculation to determine how much you could borrow. They would multiply your total income (both you and your partner) by 3, 4 or 5 to give a maximum mortgage amount. This method does not take into consideration your outgoings, so it is no longer considered a safe way to make lending decisions. Banks and building societies now use many more complex methods to judge how much you can afford to borrow. To reach a decision, lenders look at your current and past income, as well as your current expenditure to evaluate your maximum loan amount.
Your lender may also want to know about any regular contracts you have as this will reassure them that your income is likely to remain stable. Your debts are also part of the affordability equation, which is why it is helpful to reduce your debts before applying for a mortgage.
Ultimately, however, the single best determinant of how well you’re able to overcome the obstacles of a self-employed mortgage rests on your mortgage broker themselves.
To get more information or to speak to our expert team contact us on 01489 555 080or email us at enquiries@cmme.co.uk
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