Between 2001-2016, the number of self-employed people in the UK labour market increased from 3.3 million to 4.8 million (more than 45%), contributing around one third of total employment growth in this period. (Office for National Statistics, 2017)
Many people become self-employed due to a forced change in their circumstances, such as being made redundant. Many take the big step to being self-employed after weighing up their options and believing it may provide an improvement in opportunities, finance, or work-life balance. Either way, it can have a significant impact in the short to medium term for your ability to raise personal finance, such as obtaining a mortgage.
A bank will generally see a self-employed person as more of a financial risk than someone who is employed, partly due to lack of a secure, fixed and regular income. It is still realistic that you can get a mortgage whilst being self-employed. A standard mortgage lender may (we use 'may' loosely as the decision will always be unique to your personal circumstances) give you a mortgage if:
• You have been trading for at least three years
• You have two years of accounts or self-assessment tax returns available (correct in August 2018)
Stricter lenders may want to see a prediction of your future clients or contracts, to make sure you can at least meet your regular mortgage repayments. Circumstances can change quickly when you’re self-employed and so these checks are simply another layer of security on the part of the lender.
Also, a good credit rating and a healthy deposit will always stand you in better stead when you are asking for personal finance from any lender.
Each mortgage company may have slightly different criteria for lending and the amount you are looking to lend will play a significant part on the likelihood of being given the green light on any mortgage. There can be mis-information and uncertainty concerning self-employed mortgages due to major changes in the affordability testing in the general UK mortgage market. To understand this in detail and the criteria you need to achieve, as well as to receive help in finding specific lenders that can help you, it is always wise to speak to a mortgage adviser who is an expert in this field. They can also help you to shop around for the right self-employed mortgage.
If you would like to discuss self-employed mortgages, or any aspect of personal financial advice, please get in touch with us on 01302 244 977.Publish date: 30th August 2018