Over the past year, millions of people have seen their work-life changing, from unemployment and furlough to working from home or becoming self-employed. The ONS reports that there are over 5 million people in self-employment in the UK.
However, it has also become apparent that people who are self-employed may struggle to get mortgages or loans as it may be harder to prove exactly what they earn, or that their earnings will stay consistent for a long period of time. With this in mind, OnlineMortgageAdvisor.co.uk sought to help people find the right mortgages and providers with free help and advice.
Typical rates available: If you lock yourself into a fixed-rate deal, typical rates can range between 2.5% and 3.5% during the introductory rates period. Once you revert to the lenders’ standard variable rate (SRV), the rate can increase to upwards of 4%.
Maximum loans: Not all mortgage providers use the same calculations. Most will multiply your average earnings by 4.5, some will stretch to x5 and a minority will go as high as x6, under the right circumstances.
Let’s say you’ve been earning an average of £30,000 from freelancing over the last three years and can evidence that income with accounts. Most mortgage providers would cap their lending at £135,000, some would go up to £150,000 and a minority £180,000.
Typical products fees: Can range between £500 and £1,000, although a broker who specialises in mortgages for the self-employed could help you find a deal with lower rates/fees.
Pete Mugleston from OnlineMortgageAdvisor gives his top tips for securing a mortgage if you are self-employed:
“The amount of time you’ve been trading for can be a key factor when applying for a mortgage as a self-employed professional. The vast majority of mortgage lenders will need 2-3 years’ worth of accounts to prove that your income is stable and high enough to cover the mortgage payments. Many people with less than two years’ trading history are rejected outright, but it’s often the case that they simply approached the wrong lender.
“A minority of mortgage providers will consider self-employed mortgage applicants with just one year’s trading history, though this is usually limited to lenders you won’t find on the high street or through a Google search. Minimal trading history might also mean having to pay a higher interest rate due to having far fewer mortgage products to choose from. However, none of this is to say that finding a favourable deal is impossible if you’re self-employed with only 12 months’ proof of income.
“There are mortgage brokers who specialise in self-employed applicants and they know exactly which lenders will accept an application based on one year’s accounts. Furthermore, these brokers also have deep working relationships with certain mortgage providers and can often negotiate deals that don’t include a heavy rates hike to offset the risk posed by limited trading history. The bottom line is this: if you’re self-employed with only one year’s accounts, it’s still possible to get approved for a mortgage and favourable terms, but you’ll likely need professional advice to find the right lender.”
For more information, please see OnlineMortgageAdvisor’s ‘self-employed mortgages’ page here: https://www.onlinemortgageadvisor.co.uk/self-employed-mortgages/