First of all, we never say never …
Over 10% of the UK’s workforce is self-employed and yet most of us know that being self-employed can make it much trickier to get a mortgage.
It all comes down to documentation – lenders are looking for cast iron proof that you’ll be able to repay your loan. We know, like you do, that nothing is guaranteed and no proof is really cast iron, so this can be really frustrating. But ultimately, an employed person will have access to a suite of documents that will satisfy inflexible lenders (payslips, P60s, bank statements, employment contracts) and a self-employed person will not.
What we need here are flexible lenders, and believe it or not, they do exist.
Below, we outline some obstacles that we’ve overcome with our clients. If you’re facing any of them right now, or think you will be soon, talking to a mortgage broker with access to a large range of products – like Pagoda – is the most productive way forward.
Obstacle number 1: You have fewer than two years of accounts
Most lenders require a minimum trading history of two years and we know people who have delayed their property search until they’ve filed that all-important second year of accounts. But it’s not always necessary (or advisable) to put your life on hold. There are lenders who will consider just one year’s trading history – and they’re not just specialists with eye-watering rates, either. There are excellent high street options out there if you know where to look (spoiler: we do).
Obstacle number 2: You’re the director of a limited company
In order to keep tax liability down, many directors of limited companies take a minimal sum as wages and dividends from their business. If this is you, it makes total sense that you’ve chosen to operate like this, but it can work against you when you apply for a mortgage. This is because most lenders will only look at what you’ve actually taken to determine what you can borrow – and low income means low borrowing power, even if you know in your heart (and your bottom line) that you can afford more.
For this conundrum, we need lenders who are prepared to look at the performance of the business as a whole, considering its net profits, rather than just your individual income. As mortgage advisors to a number of self-employed clients, we are finding this approach really helpful. And again, you just need a mortgage broker who knows where to look.
Obstacle number 3: You’re a contractor
A classic! Whether you’re a doctor, a freelance designer, a plumber or a carpenter, if you work on a freelance or project basis, from contract to contract, it’s always more complicated to apply for a mortgage. This is purely because of the way lenders can be sticklers for their criteria, and between them their criteria can be so incredibly different. They usually want to see a fairly long contracting history or several years of experience in the same line of work. But what’s acceptable to one lender may not be to another – and vice versa. You want to work with a mortgage broker who knows these varying criteria inside out.
Obstacle number 4: You’re a partner in a law firm
You don’t expect people flying high in their law career to encounter difficulties getting a mortgage, but computer-says-no syndrome affects us all. Lawyers who have recently been made partner can find it challenging to get a mortgage, because they have effectively been made self-employed in the process, and don’t have two years of tax documents to show (because they were previously employed by their law firm!). A lot of high street lenders remain stubborn in their criteria and unable to acknowledge circumstance, but – thankfully – there are one or two that take a more common-sense approach.
Obstacle number 5: You’re a professional sportsperson
There are various reasons that sportspeople might struggle to get a mortgage and (you might be getting the hang of this) all of them relate to complexities in demonstrating a healthy, stable and long-term income. Often, sportspeople approaching us for mortgage advice have incomes that are made up of wages (usually on a fixed-term contract), bonuses, advertising and sponsorship deals. But there are other sticking points for sportspeople, too – like the ever-present threat of injury and the fact that football, rugby and boxing careers (for instance) tend to be relatively short.
As ever, this comes back to the lender – traditionally, lenders won’t offer mortgages to professional sportspeople with a term that takes the borrower beyond the age of 35, which considerably squeezes the length of time they then have to pay their loan back. But there are always work-arounds. For instance, some lenders who live in fear of short-term contracts can be persuaded if we’re able to show them the sportsperson is in high demand and will easily score another contract when they need one. And some lenders are even willing to consider multiple income streams! Imagine that.
In summary
You’re self-employed and your income is a little complicated, but you’re not an alien. If there’s a way to get you a mortgage, only a mortgage advisor with access to a wide range of products will find it. If you’d like to talk through your circumstances, we’re here. Contact us any time for free, no-obligation mortgage advice.
*This blog contains information that was correct at the time of publication, but is subject to change.