Mortgage Market Review (MMR) rules introduced in the wake of the crisis are aimed at ensuring that borrowers aren’t offered loans that they may struggle to repay.
Now there are fewer specific products aimed at the self employed and lenders may be reluctant to take on people who don’t fall into one of their neatly-defined income brackets. This can be a source of frustration, particularly if you know you have the savings needed to make a deposit and sufficient income to keep up the repayments.
What’s your business?Some lender sites will have a way to address this question: with a self employed mortgage calculator how much can I borrow? That will give you an idea as to what size loan may be possible. In part, this will depend upon the nature of your self employment.
You will usually be classed as self employed if you own around 25 percent of a business. Members of a partnership may also be classed as self employed and in certain circumstances directors of limited companies may be too. If you are employed but do some freelance work on the side the additional income will be classed as self employment.
If you are classed as self employed then you will need to declare your income to the lender and be able to prove it. Usually, this proof will be in the form of two or three years of accounts. This can be in the shape of an SA302 form that summarises the information sent to HMRC on your self assessment forms; these can cover several years of returns. If you file your returns on the internet you can print out the form yourself, otherwise you will have to request one from the tax office.
The lender may also want to know about your future prospects in terms of the clients and contracts you have lined up.
Income variationsMortgage lending is generally assessed on a mix of your credit score and your income. If you are employed, this is relatively easy to do. For the self employed, however, things are more complicated. Your income is likely to come from a number of different sources; you may have some months that are better than others; you may have problems with late payment of invoices. As such, there may be a variety of things to take into account when you ask a self employed mortgage calculator how much can I borrow? Essentially, the lender doesn’t want you to be left with a loan that you will be struggling to repay.
Your business may be growing fast at the moment, or you may be in a field that is subject to seasonal variations. This is why lenders typically want to see several years accounts so that they can get a broader picture of your ability to pay.
If you don’t have two or more years of accounts available, it may still be possible to get a mortgage. Some lenders will look favourably on those who have a good track record - in contract work for example. If you have a good level of savings, they are likely to be more receptive too.
If you already have a mortgage - perhaps from before you became self employed - and are looking to remortgage, your payment record in the past will count in your favour if you have shown that you can keep up the instalments.
Having a good credit record will help and there are online services that will allow you to check your credit score for free. If you can show that you have been able to repay other loans or credit cards consistently, then this will be taken into account by the lender. There are lenders who will consider those with a poor credit score, but you are unlikely to be able to access the most competitive rates.
Types of mortgagesYou can work out with a self employed mortgage calculator how much can I borrow? But what type of mortgage can you realistically expect to get? There are many specialist lenders who offer mortgage products specifically aimed at the self employed.
In addition, some of the high street lenders are willing to lend to the self employed and it may be worth trying them first as they are likely to have a wider range of products on offer. This means that you will have access to a full range of products including tracker mortgages, fixed rate deals and standard variable rates.
Some lenders may ask the self employed to come up with a larger deposit before offering a mortgage. It’s always worth shopping around to see what kind of deals are available elsewhere if you are uncomfortable with a particular requirement.
The figures from an online calculator will give you an idea as to the size of loan you may be able to agree but it is always worth talking to specialists in order to get accurate assessments.
Top tipsFinally, here are a few tips to help you boost your chances of getting a mortgage if you are self employed:
- Make sure your accounts are up to date, your most recent set should be no more than 18-months old.
- If you have an accountant, a set of figures from them will carry more weight, alternatively get an SA302 form from HMRC.
- Order your SA302 well in advance, they can take a few weeks to arrive so make sure you have it before you begin mortgage the application process.
- Ideally, you should be able to show steady or increasing profits.
- Make sure you pay yourself a dividend from profits rather than retaining too much cash within the business.