Self employed mortgages are not dissimilar to other residential mortgage packages. However, some lenders specialise in lending to the self employed, and they’re worth seeking out. A self employed mortgage is a home loan for someone who works in a self employed capacity. This could include contract work, freelancing or running your own business.
There are no more “self-certification mortgages”, a unique product for the self employed. This is because they were over-sold in the wrong circumstances. So, while it may be more difficult for self employed to get a mortgage, there are criteria you can use to your advantage.
The difference in self employed mortgages
The primary difference between self employed mortgages and other residential mortgages are how they are assessed. Instead of working off your salary, some lenders understand that for self employed borrowers or contractors matters may be more complex. Consequently, it’s the job of your adviser to assess which will work best for you. Some lenders will work from the latest trading accounts whilst others will consider your more recent trading, accept references from accountants or rely on contacts you have in place.
The main high street lenders will require you to have been trading for 2-3 years prior to the application. They will also require proof of your income. However, at the other extreme, some lenders are willing to lend to people who have been self employed for 12 months. But, these are much rarer, making advice a necessity. To help your cause, always keep management accounts and be prepared to show your bank statements to a lender. This will evidence your cash flow and profits.
As with standard residential mortgages, lenders normally expect a deposit of at least 10%. However, with riskier investments, this could easily increase to 20% or further. An example of a riskier investment is if the borrower has only been self employed for a year.