Many of us find house hunting an exciting activity to take on. However, it can get frustrating, especially if you are not aware of the type of house you need. Below are the various types of houses and their effect on a mortgage.
Banks and other mortgage lenders require proof of reliable income, so as long as you are prepared to go the extra mile, getting a mortgage needn’t be out of reach.
What happened to self-certification mortgages?
Self-certification mortgages were designed to help self-employed people get a mortgage without having to jump through too many hoops. Up until 2014, the self-employed were allowed to self-certify their income without providing evidence. Although this made it easy to get a mortgage, it often led to people being left with mortgages they simply couldn’t afford.
Self-certification mortgages were therefore banned in 2014 so that people who are self-employed could not overestimate their potential income and risk repossession. Now self-employed people have to go through the same mortgage process as non-self-employed people, which can prove difficult if you are not adequately prepared. So, continue reading our handy guide to getting a mortgage when you are self-employed to learn more about the process and what can make it easier.
Do I count as being self-employed?
Banks, mortgage brokers and lenders consider a person to be self-employed if they own 20-25% of a business from which they earn their primary income. However, you will also be regarded as self-employed if you earn your income from being a sole trader, company director, freelancer or contractor.
How can I get a mortgage if I am self-employed?
As a self-employed person, you will technically have access to the same mortgages as everyone else. However, because lenders cannot verify your income via your employer, you will be expected to provide more evidence of the stability of your income than other mortgage-seekers.
The restrictions and limitations for lending money to the self-employed have tightened up considerably since the 2014 Mortgage Market Review. This means that lenders are much stricter when assessing the affordability of mortgages, especially to those who are self-employed.
What evidence do I need to provide to get a self-employed mortgage?
You will need to provide proof of income over the last two or more years. Usually, you will need to provide certified accounts and SA302 forms or a tax year overview for the last two or three years (different banks will have slightly different requirements). In addition to this, you will need to provide evidence of upcoming contracts if you are a contractor and evidence of profits if you are a company director. Accounts which have been prepared by qualified accountants will be received more favourably than those which you have prepared yourself, as there will be more assurance of reliability.
If you have been self-employed for less than a year, you will probably find it difficult to persuade lenders that your income is stable. If you can provide evidence of future contracts (if you are a contractor), it will be very helpful in convincing banks of your future income.
You will also need to provide proof of ID, either a passport or driving licence as well as proof of address using documents such as utility bill or a bank statement. Lenders will also ask for at least three months of personal bank statements.
Will I have to pay a higher mortgage rate because I am self-employed?
In a nutshell – not necessarily. Assuming that you can provide the necessary proof of income, you should qualify for the same mortgage rates as someone who earns a salary from a full-time job. If you have trouble getting a mortgage from a mainstream bank you may have to look to specialist self-employed mortgage lenders – who may have higher rates.
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Improve your chance of securing a mortgage
Much of the advice given to those in full or part-time employment, also applies to people seeking self-employed mortgages. You can boost your chances of getting a mortgage by saving for a substantial deposit, checking your credit rating and fixing any errors which are on your credit report. By consulting reputable mortgage brokers, such as our advisors at Orchard Mortgage Solutions, we will search for the best-specialised deals designed for self-employed people.
DO YOU HAVE THE RIGHT INSURANCE COVER?
Quality insurance is important for anyone with a home of their own, or who is currently in the process of buying one. At Orchard Mortgage Solutions, we’ll help you secure the best insurance for you and your home.