Stepping into the realm of homeownership as a self-employed individual can be a thrilling yet intricate venture. The unique financial landscape of self-employment brings its own set of challenges and considerations, from fluctuating income patterns to distinct mortgage requirements. This is where a specialised Mortgage Advisor for Self-Employed Homebuyers becomes an invaluable asset in your journey.
Understanding the Self-Employed Mortgage Process
For self-employed buyers, the mortgage process demands a more specialist approach. It involves a thorough evaluation of your financial health, with an emphasis on tax returns, profit and loss statements, and bank statements. The process also includes understanding how lenders view self-employed income, which can be more complex than traditional employment. A dedicated Mortgage Advisor will help navigate through these specifics, ensuring you’re well-prepared and informed at every step.
Benefits of Working with a Mortgage Advisor for Self-Employed Individuals
The benefits of partnering with a Mortgage Advisor specialised in self-employed clients are substantial. They offer tailored advice suited to the unique financial circumstances of self-employed individuals. Their expertise in comparing various mortgage deals, understanding fluctuating incomes, and navigating through the more complex aspects of mortgage agreements is crucial. This guidance can be pivotal in securing a mortgage that aligns with your individual financial scenario and long-term property goals.
What to Expect from Your Self-Employed Mortgage Advisor
When working with a Mortgage Advisor as a self-employed individual, expect a blend of expert guidance and personalised service. They will provide a detailed overview of the mortgage landscape as it applies to self-employed incomes, help in utilising financial tools, and explain relevant mortgage products and government schemes that could be beneficial. They will also clarify additional costs like stamp duty (use our Stamp Duty Calculator for an initial guide), legal fees, and potential moving expenses, ensuring you have a comprehensive understanding of the entire process.
How to get a mortgage if you are Self-Employed?
If you’re looking for knowledgeable, trustworthy, and straightforward mortgage advice, we’ve got you covered. With years of experience navigating the Self-Employed market, our team at Kerr & Watson is here to guide you through every step of your mortgage journey.
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Who Are Kerr & Watson?
Kerr & Watson is an independent regulated mortgage and insurance broker with access to the whole market.
We have a wealth of experience and strong industry relationships with high street providers, specialist lenders and insurers. This puts us in a prime position to secure your perfect mortgage and insurance policies.
We’ll provide you with a tailored financial solution to meet your individual needs.
What is a Mortgage for a Self-Employed Person?
A self-employed mortgage is essentially the same as any other mortgage product, but the process of obtaining it differs due to the nature of self-employment. Lenders often perceive self-employed individuals as higher-risk borrowers due to income variability. Consequently, the self-employed must provide extensive proof of stable income to qualify for a mortgage.
How Much Deposit Is Needed?
The deposit requirement for a self-employed mortgage aligns with general mortgage standards, yet a larger deposit could significantly enhance approval chances. A substantial deposit lowers the loan-to-value ratio, thereby reducing the lender’s risk. This could also translate into more favourable interest rates.
How Much Can I Borrow for a Mortgage as Self-Employed?
The borrowing capacity for self-employed individuals is typically calculated based on their net profit or salary plus dividends if they’re company directors. Lenders often average these figures over two to three years to gauge a reliable income estimate. The exact amount varies among lenders, but a general rule is a multiplier of these average earnings, usually up to four to five times. Use our mortgage calculator for an initial guide.
How Long Does It Take for a Self-Employed Person to Get a Mortgage?
The timeline for a self-employed mortgage can be longer than for a regular employee due to the additional scrutiny and documentation required. However, with well-prepared and comprehensive financial records, the process can be expedited.
The Application Process for a Self-Employed Mortgage
Applying for a self-employed mortgage requires thorough preparation. Essential documents include:
- Two or more years of certified accounts.
- Tax calculations and tax year overviews from HMRC.
- Evidence of upcoming contracts for contractors.
- Proof of dividend payments or retained profits for company directors.
- Recent bank statements, proof of ID, and proof of address.
Here you can find more information on what to bring to your mortgage appointment, or specifically for a self-employed individual.
Affordability and Lenders’ Criteria
Following the Mortgage Market Review (MMR) of 2014, lenders must rigorously assess whether an applicant can afford a mortgage. This “stress test” includes a hypothetical interest rate rise and a detailed examination of income versus expenditures, including debts and lifestyle costs. It’s crucial to note that lenders vary in their criteria; thus, where one might reject an application, another might accept.
How Self-Employed Mortgages Are Assessed
The assessment varies based on the applicant’s business structure:
- Sole traders provide income details via self-assessment and SA302 forms.
- Partnerships require an examination of individual shares and profits.
- Limited company directors’ assessments consider both salary and dividends, though not all lenders factor in retained profits.
Special Considerations
- Self-certification mortgages, once a popular choice for the self-employed, are no longer available in the UK market.
- While being self-employed might necessitate more effort to secure a mortgage, it doesn’t inherently mean higher rates. Equal access to competitive rates is possible with sufficient income proof and a strong credit history.
Conclusion
Navigating the mortgage process as a self-employed individual in the UK requires thorough preparation and understanding of lender requirements.
Contact Kerr & Watson today for assistance with your mortgage.
