Is the mortgage market serving the 4.5 million self-employed British people?
Million pound mortgages for self-employed clients are one of our main areas of expertise at Enness. Ever since the regulator changed the rules surrounding the mortgage market last year the ever-growing bracket of “self-employed” people have found it increasingly hard to step onto the property ladder.
This is particularly interesting considering the number of people self-employed in the UK is at its highest level for 40 years. Britain is world-renowned for being a nation of entrepreneurs, start-up founders and SME creators and with 15% of the total population fitting into this category it’s arguably the time to combat the problems facing the self-sufficient entrepreneur when trying to buy a house with that hard-earned money.
Theoretically, you should be able to get a mortgage if you can afford the monthly payments to sustain the amount you are borrowing, yet the reality of the situation is that the bank would prefer to lend to an employed applicant on a lower salary than to someone who has started their own business. We explore the reasons why…
Why do self-employed individuals struggle to get a mortgage?
The reason that million pound mortgages for self-employed people are harder to secure is that, in banks’ eyes, you are less likely to have a regular monthly income than if you were employed. This means that lenders are likely to shy away from million pound mortgages for self-employed applicants as you are a riskier bet than an employed candidate.
This is particularly true for those clients who are newly self-employed, although even some very well-established clients will find that their options are limited. If you are newly self-employed you will find that only a handful of high street lenders are prepared to lend to you. If you have two or three years’ worth of accounts you are in a better position, although this is only one of several aspects banks will look at.
Under the new regulations last year, both self-employed and employed mortgage applicants have to show bank statements and provide details of debt repayments and outgoings, including any expenses such as childcare costs, holiday spending and pension contributions.
Another typical problem is that different lenders assess income in different ways – particularly if you have set up your business as a limited company. This is because each lender, according to their stance, interprets income structures in contrasting ways. Some lenders look at salary plus dividends when accessing income of limited companies, whereas others are happy to look at the net profit. Other lenders are more uncomfortable considering an applicant with a limited company that is sheltering profits.
The situation now…
However, the good news is that the assessment of million pound mortgages for self-employed clients has improved and is increasingly positive; especially when your case is presented correctly by a broker. We know the minute differences between lenders’ preferences due to our constant engagement and in-depth market knowledge and we can demonstrate your affordability accordingly. This, paired with the fact the most advanced lenders are being much more receptive than they have been at any point since before the financial crisis is to your advantage if you are self-employed as we will be able to identify the lender most understanding of your circumstances.
For example, if you work as a contractor, your circumstances may differ from someone who is self-employed and if you speak to a specialist broker you may be able to avoid supplying several years’ worth of accounts. If you have formal contracts in place stating how much you will be paid for the work and for how long you may be able to avoid supplying several years’ of accounts. Go to our contractor mortgage page to learn more about this.
Each lender requires different levels of detail, according to their structure, but when it comes to paperwork some lenders will be prepared to accept accounts from your accountant (this is the case of most private banks), whereas others will want proof of your income from HMRC and to see your SA302.
If you are self-employed and you are struggling to raise finance to buy a property why not get in touch? We’d love to hear about the problems you have met and guide you to the best solution.