Self Employed Mortgages
Getting a self-employed mortgage has never been that easy and in the current economic climate has become even harder. Demand for these types of mortgages has increased over recent years as more people become self-employed or on some form of fixed-term contract.
Before the 2007 credit crunch, self-employed mortgages were obtained mainly as a self-certified mortgage where your income was declared by yourself and not checked. The self-cert path has clearly gone now, so what can you do?
Getting Self Employed Mortgages
Demand and Supply are Still High
Getting a mortgage for small business owners can still be obtained. In general, the rules and products available for employed people are the same. Your income gets assessed by producing at least three years of accounts. Some lenders will take one-year accounts together with a statement from your accountant of your current run rate.
To make life easier, if you have previous PAYE income to hand or your partner has employment income, your bank may take these into account when assessing your application.
Most Banks Still Lend to The Self Employed
Banks, brokers, and other lenders will still look into your credit history in any case and although most headline rates offer loan-to-value limits of around 75% higher LTV options are available. You will also be able to choose fixed-rate mortgages, capped rates, standard variable rate and base rate plus a percentage.
Rates and Loan Percentages are Different
Some banks, however, will only lend up to a certain amount, say 65%, then at above this rate they will require you to take out some form of mortgage protection insurance. It may be worth discussing your requirements with a trusted and specialist mortgage broker as the self-employed mortgage market can be a minefield.
Choosing the Right Mortgage Lenders
All of the major banks from Barclays, HSBC, Natwest, Halifax, Royal Bank of Scotland, Abbey and Lloyds TSB all lend to self-employed business owners but are more cautious. If you have tried to get a mortgage or remortgage already and had your application rejected or the rates of interest and penalties are too high, be careful what you do next.
Repeated applications will show up in your credit history and credit check reports that every lender looks at and this may be a negative sign for any new bank or broker that things are not all fine. In the first instance, we recommend you either talk to your business bank or the bank you have been using for your personal accounts. They have your history already and may be able to take this into account when assessing an offer for you.
Calculating Your Mortgage Repayments
Knowing what you can afford may already be in your mind. As the short-term fixed-rate deals increase, you may need to check out your likely repayments. And that's why we have developed a handy online mortgage repayment calculator so you can see what any mortgage or remortgage is going to cost you month by month. It shows the total loan and the interest as well.
Self Employed Mortgage Rates
Current rates for all mortgages are probably around 3% above base rate as a minimum. When searching the internet for deals (which from our research are few and far between) take into account any fees you may have to pay either as an application fee or a product fee.
How Much Can I Borrow?
The answer to this question depends on your employment status and income. Broadly speaking, the following applies:
- Owners of limited companies take your salary and dividends into account. Sometimes, the company profit can also make it into the calculation.
- If you're a sole trader, then it's just your profits because you don't draw dividends from this type of set-up.
- Employees of Limited Liability Partnerships tend to be treated the same as PAYE because you draw a salary and sometimes bonuses.
- Standard partnership agreements work in the same manner as sole traders for mortgage purposes.
Using Mortgage Brokers
If you employ a broker, get a contract in writing before you instruct them.
Previously, most brokers never charged anything for their services because they received a commission from the mortgage company, but the IFA world has changed.
All brokers now charged fixed or variable fees although some also collect commission payments depending on the lender. Charges can be anywhere between £300 and £1,000 depending on your circumstances and how much to want to borrow. Be careful here also because if your broker cannot get you a mortgage and you have to find another one, there may be more fees involved.