If you are self employed, you may be wondering whether you are in a position to obtain a mortgage
It is a common misconception that it is not possible to obtain a mortgage if you have less than 2 years worth of accounts. You may be interested to hear that it is actually possible to obtain such a mortgage and, regarding a mortgage for the self employed, 2 years worth of accounts is perfectly adequate. It is even possible to obtain a mortgage if you have been self employed for less than 2 years and these are available nationwide.
The situations in which you may wish to obtain self employed mortgages can vary. Set out below are a number of different scenarios that may be relevant to a self employed applicant, including getting a mortgage with 2 years accounts. It is always worth looking at a mortgage calculator to access accurate figures.
As with obtaining any type of mortgage, it may be useful to consult a specialist advisor in order to make sure you obtain the mortgage that is the most appropriate for your needs.
Buy to Let mortgages for the self employed
With buy to let mortgages, the only difference is that they typically involve a requirement for a higher deposit compared to residential mortgages. There is still lots of interest in lending on a buy to let basis to those who wish to invest in the property market and the majority of lenders will offer buy to let mortgages with a deposit of 30 to 40%. Some will be willing to consider a buy to let mortgage with a deposit of 20 to 25%.
A few may even be willing to offer a buy to let mortgage with a smaller deposit of only 15% in certain circumstances. It is important to note that there are fewer lenders offering this type of mortgage within Scotland where higher deposits are generally required. Specialist advice is recommended in this area.
Although it can be harder to obtain a buy to let mortgage when you are self employed, times are changing with the result being that it is much easier to achieve than it used to be. Lenders are now willing to relax their criteria and offer more flexibility when lending to self employed people, particularly in relation to Buy to Lets.
It is possible for Buy to Let mortgages to be available with:
- Only 1 years worth of accounts
- Only 2 years worth of accounts
- No income needed for landlords who are experienced.
- No minimum amount of income required
For experienced landlords, you may not need proof of income as many lenders will be satisfied that you have a working knowledge of this area and the risk is therefore less in their eyes. There will still be some lenders who will require significant proof of income or further information from you. Shopping around is key to finding the best way forward.
- The amount of time you have been a contractor
- The type of work
- The amount of time you have worked in your current industry
- The amount of time remaining on your current contract
- Whether you’ve had your contracts renewed previously
In extreme cases, you may come across a lender who will consider you even if you have only just started your contract. This will be offered on the basis of a multiple using your daily rate, provided that your contract lasts for a minimum of six months and that you can provide proof that you have previously worked in the same capacity.
Because we play by the book we want to tell you that...
Your home may be repossessed if you do not keep up repayments on your mortgage.
There may be a fee for mortgage advice. The actual amount you pay will depend upon your circumstances. The fee is up to 1.5%, but a typical fee is 0.3% of the amount borrowed.
Partnerships and sole trader mortgages
Loan to valueIf the required mortgage amount is considered to be affordable, the deposit requested would most likely be identical for partnerships and sole traders as for applicants who are employed. The exception to the rule is in situations where certain lenders may agree to offer underwriting that is more flexible for people with circumstances falling outside their usual criteria for lending.
History of tradingAs we have seen before, although the majority of lenders require at least 3 years' worth of trading history in order to consider lending, some lenders are willing to accept a 2 year period and a small percentage may be willing to accept partnerships and sole traders who have been up and running for only 12 months.
MultiplesThe way in which calculations of sole trader incomes are made vary depending upon the lender. 3.5 times the income amount is common although some will use 4 times the annual income with certain lenders electing to lend at 5 times. In special circumstances, it may be possible to achieve a higher multiple figure through a specialist loan that is secured or through a second charge lender. This will mostly be for those looking to refinance and borrow additional sums.
Mortgage affordability and adverse credit
What happens if you have bad credit and wish to obtain a mortgage?Your position will be more challenging if you are looking at getting a mortgage with 2 years accounts but you have a bad credit history. Given the turbulence in recent times, more and more people are seeking information relating to obtaining mortgages with bad credit. Mortgages catering for those with bad credit have, therefore, changed in the context of availability and eligibility criteria, particularly during the last four years.
Bad credit mortgages are not as widely available as they were previously. However, some lenders have recently decided to return to the market and are once again offering mortgages to those with less than perfect credit profiles. It is worth bearing in mind that, even if you have been previously declined for a mortgage, this does not necessarily mean that you will be declined by another lender.
Our specialist advisors have arranged mortgages for those with a history of bad credit which may encompass one or more of the following issues:
- Payday loans
- Low credit scores
- Late payments
- No credit history
- Missed mortgage instalments
- Individual Voluntary Arrangements (IVAs)
- Schemes relating to debt management plans (DMPs)
- County Court Judgements
It is therefore essential that you obtain a detailed credit report from each of these three major credit reference agencies and that you share this information with your mortgage broker to ensure that the process is correctly aligned and appropriate lenders are included and excluded from the outset.
Being both self employed and having a bad credit history
In addition, if you only have, for example, one missed payment for your phone bill, you are more likely to be considered than somebody who has been made bankrupt in the past. Given the complexities in this area, it is always worth seeking specialist advice as to your options.
Should you wish to make improvements to your credit rating, there are a number of steps you can take to make a real difference to your situation:
- Check every single one of your existing credit reports
- As we outlined above, different lenders will use different agencies.
- Responsible borrowing will help
Even if you have adverse credit and may struggle to obtain a mainstream credit card, obtaining a card which is specifically designed for those with adverse credit, using it and repaying the full balance every month, will again show that you are capable of borrowing and living within appropriate financial boundaries. If you do this, you should see that your credit score will improve steadily over time.