Mortgage providers often want to see a reliable income stream, proving you’ll be able to keep up with repayments. It can mean self-employed workers can see their application rejected. In fact, one in six (17%) of Brits has had a mortgage application rejected because they’re self-employed, according to The Money Pages. This can mean putting your plans on hold.
Fortunately, being self-employed doesn’t have to mean giving up plans of homeownership and there are some things you can do to improve your chances of securing a mortgage.
1. Check your credit report
Everyone applying for a mortgage should take some time to review their credit report. This is what lenders use to assess your suitability for a mortgage and how much of a risk you are. For self-employed workers, it’s even more important that you check your report.
You should review your report for any mistakes, which could harm your application, and see if there are any steps you can take to improve it. For instance, registering with the electoral roll or reducing the amount of credit you’re utilising can provide a boost to your overall credit score.
Keep in mind that it can take some time for changes on your credit report to show up. It’s a good idea to take this step when you first start thinking about buying a home.
2. Consider the size of your deposit
If you’re a first-time buyer, one of the initial challenges in securing a mortgage is saving a deposit. Typically, this will be 5-10% of the property’s value. However, if you’re self-employed, this could be higher. A lender may request a deposit of 20%, for instance. This is because self-employed workers are viewed as more of a risk than those who are traditionally employed.
Having to save more for a deposit can be frustrating, but some government schemes can provide you with a helping hand. A Lifetime ISA (LISA) allows you to contribute up to £4,000 per tax year and receive a 25% boost, while the Help-to-Buy scheme can reduce how much deposit you need in some circumstances. Both these schemes have pros and cons that are important to weight up first. If you’d like more information, please get in touch.
3. Get your paperwork organised
All mortgage applicants should take some time to prepare their paperwork. Lenders will want to see proof of your income. However, for self-employed workers, it’s a little more complicated than handing over your latest payslip.
You will be expected to show at least two years of accounts and tax forms. In some cases, lenders will ask for documents going back even further. This is used to review how stable your income is. If you’re newly self-employed, don’t panic; you may still be able to take out a mortgage. Please contact us to review your options.
If getting a mortgage is still some way off, keep in mind that you’ll need to prove your income when applying. Minimising your income for tax purposes, for instance, could mean you’re able to borrow far less or even that your application is rejected.
4. Demonstrate your contracts
When applying for a mortgage, demonstrating stability is important. If you can, showing that you will have a regular income stream in coming months can help to prove this.
For example, if you’re a contractor, have your contracts on hand to support your application. It can help show you’re in a position financially to meet repayments in the medium- and long-term. If you have long-term working relationships with clients, these can also support your application by demonstrating that your skills are in demand.
5. Search for specialist lenders
There is a range of mortgage providers available to choose from. Some are well-known names, while others you may never have heard of. Each will have their own criteria on which they judge applicants. As a self-employed worker, a specialist lender may be more suitable for your needs. Some will be more favourable to your circumstances.
Searching the market for the right lender for you can be time-consuming, and understanding the different criteria can be complex. This is where we can help as a mortgage broker. We’ll take the time to understand your situation and be able to find those lenders that are most likely to accept your application with favourable terms. We’re also on hand to help you throughout the process, such as answering your questions and reviewing paperwork before it’s submitted to the mortgage provider.
If you’re self-employed and are looking for a mortgage, please contact our team to find out how we can help.
Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.