After the recession started in 2008, the blame for
the financial crisis was laid firmly at the feet of banks that had
miscalculated the risks of lending to customers. As a result, the FSA has
introduced new regulations that have made it obligatory for those applying for
a mortgage to provide proof of income in the form of payslips to illustrate
their ability to afford the repayments on such a loan. Obviously, this is a
problem for those who are self-employed to whom payslips are not generally self-issued.
In addition, the incomes of those who are self-employed are generally not seen
as being secure, making it more difficult for these people to get a mortgage. So
if you are self-employed, how
should you go about obtaining a mortgage?
Be aware of the banks' requirements You will need to provide proof of your income for the past three years – obviously simply providing payslips is not an option, so you will need to provide bank statements, tax return records (including your SA302 form and self-assessment tax returns) as well as your official company accounts. If you have been self-employed for a number of years and are not able to provide these documents, then it is highly unlikely that you will even be considered for a mortgage from any lender.
Handling your money As with any form of loan, lenders will need to be assured that their money is in safe hands. Taking into consideration that as a self-employed person you are already seen as a risk, you will need to show that you can be trusted. Pay all of your credit card bills on time and make sure that your cheques never bounce to show that you can handle your finances. Understand your accounts to explain any inconsistencies – if for example your accounts show that last years’ profit margins fell short of the previous two years, you will probably be asked to explain the shortfall in order to determine whether this trend for falling profits is set to continue, or whether it is merely an anomaly. It would also be advisable to credit check yourself before applying for a mortgage. This is to ensure that that there are no black marks against your name or that of your business and that all information held is correct. A bad credit record could well result in your being declined a loan. For a better understanding of how your self-employed earnings will be considered when assessing your eligibility for a mortgage, use an eMortgage Calculator, which will automatically work out how much you can borrow based on the amount and type of earnings you enter.
Speak to your bank It would always be advisable to seek advice and your current bank should be your first port of call as they will be privy to the important financial information that will affect your chances of obtaining a mortgage as well as the repayments that you will need to make. Your bank’s advisors will be able to tell you whether you are likely to be approved for a mortgage and to make you aware of your options in case it is likely for any reason that you will be declined a particular type of mortgage.
Be aware of the banks' requirements You will need to provide proof of your income for the past three years – obviously simply providing payslips is not an option, so you will need to provide bank statements, tax return records (including your SA302 form and self-assessment tax returns) as well as your official company accounts. If you have been self-employed for a number of years and are not able to provide these documents, then it is highly unlikely that you will even be considered for a mortgage from any lender.
Handling your money As with any form of loan, lenders will need to be assured that their money is in safe hands. Taking into consideration that as a self-employed person you are already seen as a risk, you will need to show that you can be trusted. Pay all of your credit card bills on time and make sure that your cheques never bounce to show that you can handle your finances. Understand your accounts to explain any inconsistencies – if for example your accounts show that last years’ profit margins fell short of the previous two years, you will probably be asked to explain the shortfall in order to determine whether this trend for falling profits is set to continue, or whether it is merely an anomaly. It would also be advisable to credit check yourself before applying for a mortgage. This is to ensure that that there are no black marks against your name or that of your business and that all information held is correct. A bad credit record could well result in your being declined a loan. For a better understanding of how your self-employed earnings will be considered when assessing your eligibility for a mortgage, use an eMortgage Calculator, which will automatically work out how much you can borrow based on the amount and type of earnings you enter.
Speak to your bank It would always be advisable to seek advice and your current bank should be your first port of call as they will be privy to the important financial information that will affect your chances of obtaining a mortgage as well as the repayments that you will need to make. Your bank’s advisors will be able to tell you whether you are likely to be approved for a mortgage and to make you aware of your options in case it is likely for any reason that you will be declined a particular type of mortgage.
1 comments:
This is something that I've been wondering about since we are buying a new house next year.
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