One of the hardest things to do in life is to get onto the property ladder. It’s not as easy as just asking the bank for a mortgage. You have to prove that you can afford it – and the years you have spent renting and paying that rent on time isn’t enough proof (unfortunately!).
If you are looking to buy your first home, you need to know exactly how to do it – but if you’re a self-employed individual, you’re about to walk into a whole new world of research you didn’t know you needed to do!
Buying a property as a self-employed person is hard
You might already be struggling with being paid on time, or guaranteeing your work. Longer term mortgages can be difficult to get because of those factors. You have to be a ‘sure thing’ with a bank or a lender: they need to know you can and will pay your mortgage and be able to uphold the maintenance on your home at the same time.
Convincing a lender to lend to you and give you a mortgage is often made much harder when you work for yourself, but that doesn’t mean that you should stop doing it. Instead, you should look at these tips for getting a mortgage as a self-employed person.
1. Plan your mortgage application in advance
If you want to dazzle the bank with your impeccable savings and great money management skills, then you need to plan in advance for your meeting. Lenders are looking for reassurance that you will have no problem in making the payments on your house. If you can prove two completed trading years with tax documents, you’re going to have an easier time of it.
Affordability can be proven in different ways depending on how you have set your business up – but profitability is key!
Lenders want to make sure that the numbers are going to work. You also might need to prove your tax payments – so plan in advance and get as organised as you can.
If you are a sole trader, most lenders will want to see two years of SA302s or Tax Year Overviews. These can be downloaded from your HMRC portal and give an overview of how much profit you are earning. Lenders will ant the most recent documents so, if you’ve been putting off getting that tax return submitted, now is the time to get it done!
If you’re a limited company director, lenders are going to want to see at least two years of accounts so get on the phone to your accountant and make sure they are up to date. Again, it’s the profitability their going to want to see and also any dividend payments you might have paid yourself.
Worried that you might not have been self-employed for long enough? There are some lenders who may consider less than two years of self employed income. This is when it’s best to speak to an experienced mortgage advisor as they will know which lenders are likely to consider your income in the best possible light.
We’ve made a handy video about the documents you will need for your mortgage. Give it a watch!
How much time do you have to get through the significant admin that comes with buying a house?
Your time is precious and as a freelancer, you might find that it’s more precious than most. A good ‘whole of market’ mortgage advisor will be able to do most of the work for you and this can make a big difference to your sanity while you get through this process.
It’s also a good idea to get good advice from a recommended advisor because they will know the best way to present your income to the right lender. If you are a Limited Company Director your accountant will have been driving down your profit margins in order to keep your tax bill to a minimum, but now your mortgage lender wants to see maximum profit in order to lend you more money. Mortgage advisors can look at your accounts and find the best lender to suit your situation so it’s always worth finding a good one.
3. Find the lender that is right for YOU
It’s tempting to chase the best rates when it comes to buying a house, but you want to consider the lenders who can best cater to your circumstances. Some lenders have a huge back log of cases and will take a long time to process your application. This could be problematic for your circumstances. Some lenders will stress-test self-employed income at different levels and this could be detrimental or beneficial depending on your unique situation. A lender who can ensure that you get the best mortgage to suit your needs isn’t always the one with the cheapest rate.
4. Try to boost your credit
The numbers matter to lenders – which is unfortunate because mistakes in the past could ruin your chances now!
You need the best possible credit file so run a credit check and do all that you can to improve your score. If you haven’t built much credit, start building it now. Consider getting a credit card and paying it off in full each month. This will demonstrate to the lender that you are reliable.
5. Save save save!
When you’re self employed and you have to work harder to prove your income to the bank, it can really help to have a bigger deposit and therefore a favourable loan to value. So, if at all possible, make sure you are saving (ideally in a high-interest savings account) to give yourself the best possible chance of getting onto the property ladder.
Hudson Rose is a firm of mortgage advisors that specialises in helping self employed people and limited company directors get mortgages in Cheltenham Cirencester, Stroud and all across the UK.
We are down to earth, relaxed and friendly and want to remove the stuffiness associated with financial services.
Give us a call and lets have a chat about how we can help you.
And if you’ve enjoyed this blog, here are some more you might find useful: