In recent months, strong demand for houses has resulted in a housing boom. If you’re thinking of buying a property then one of the first steps will be to find a mortgage, which can be particularly challenging if you work for yourself.
According to data from market data provider Statista, there are currently around 4.3 million self-employed workers in the UK. If you’re one of them, read on for five useful tips that can help you get the home loan you need.
1. Save for a larger deposit
If you’re self-employed, one of the first things you can do to improve your chances of securing a mortgage is to save up for a larger deposit.
Typically, when you put down a larger deposit, lenders are more likely to agree the loan you need, and offer you a more favourable deal, such as one with a lower interest rate.
By building up a larger deposit, you can prove to the lender that you’re less of a risk to them, which can help your chances.
2. Understand how your business structure affects your chances
Another important part of preparation is understanding how the structure of your business affects how much lenders are willing to give you.
Sole trader
If you’re a sole trader, lenders will typically make decisions based on your net profits. If your business is growing, and so your profits have been increasing for some time, they usually take the average. On the other hand, if your profits have fallen, lenders may use the final and lowest figure.
Director of a limited company
If you’re the director of a limited company, lenders usually assess your income when considering your suitability. This may be based on a combination of your salary and dividends or of your salary and retained profits in your business.
When it comes to working out how much they are willing to loan to you, it can differ between lenders. Some base the amount on the average income of recent years while others calculate it based on your most recent accounts.
Partnership
Typically, if you’re a partner in a firm, lenders will look at your individual share of the profits when making their decision. Just like if you were a sole trader, the figures they will use often depend on accounts from several years.
Knowing the basis on which lenders will make their decision can help you to work out what information you need to declare regarding your accounts when you apply for the loan.
3. Make sure you have your documents ready
When you apply for a mortgage, you’ll need to provide a variety of documents to a potential lender so that they can affirm your suitability. Typically, these are documents which prove that you can afford the repayments.
It’s important to ensure that you have all of these ready when you apply for your mortgage, as this can help to prevent delays. If you want your application process to go smoothly, thorough preparation can help.
Depending on the structure of your business, you may need different documents. These can include:
- Two or more years of certified accounts
- SA302 forms for evidence of your earnings
- Tax year overviews from HM Revenue and Customs for the past three years
- Evidence for previous and future contracts, if you are a contractor
- Evidence of dividends or retained profit, if you’re the director of a limited company.
On top of these documents, you may also need to provide proof of identity, such as:
- Your passport or driving license
- Proof of address, such as Council Tax bills
- Three to six months’ worth of business and personal bank statements.
4. Reduce your outgoings in the run-up to the application
While your income plays an important role in determining your ability to repay a mortgage, so too does your business’ outgoings.
This is why it’s important to carefully manage your company’s expenditure in the months leading up to your mortgage application. If you want to make a good impression on a lender, you may want to avoid any transactions that might give them cause for concern.
For example, regular use of your overdraft or unpaid standing orders can cause a problem, as they indicate that your finances may not be as good as they seem, and this can reduce your chances of securing a mortgage.
Reviewing your business’ expenses and keeping a positive balance for your company is important, but especially so in the months leading up to a mortgage application. By maintaining good financial habits, you can avoid any potential stumbling blocks to securing a mortgage.
5. Speak to a mortgage adviser
When you apply for a mortgage, there can be many things to consider. If you want to make the process faster, easier, and less stressful then you should consider seeking professional advice.
Working with a mortgage adviser can help you to maximise your chances of securing a loan by enabling you to make informed decisions regarding your finances. They can also offer useful advice and help you to avoid any potential issues which might cause delays.
If you want to be able to apply for your loan with confidence, secure in the knowledge that you’re in the best position to do so, working a mortgage adviser may be just what you need.
Get in touch
If you’re self-employed and want help with securing a mortgage, get in touch. Email us at office@verve-financial.com or call 0330 320 5048.
Please note:
Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.
