The self-employed have always faced an uphill struggle when it comes to mortgage applications but all is not lost. While some lenders have tightened their criteria, others are working alongside mortgage brokers to give a bit of hope to buyers with more complex incomes. Compare conveyancing solicitors HERE…
If you own your own business, work in a freelance capacity or as a contractor, then you’re disproportionately more likely than employed people to have your mortgage application denied. Despite recent measures by the government to help, from the new help to buy scheme, stamp duty holiday to 95% mortgages, self-employed people are still relatively lacking in support. However, some lenders such as Bluestone are taking a more proactive approach to encourage the self-employed and there are several mortgage brokers who remain happy to take such customers on.
It has always been more challenging as a self employed person to get a mortgage since lenders prefer the reassurance and predictability that comes with a regular income, rather than the more possibly erratic and more complex incomes that are sometimes associated with self-employment. The pandemic and lockdown have only highlighted these differences as many self-employed people and business owners have not enjoyed the support of grants and furlough schemes. As a result many lenders further tightened their lending criteria. But at last, things are beginning to shift in the other direction.
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Is It Hard For Self-Employed People To Get A Mortgage?
The search for mortgages is a lot harder for the self-employed. Many self-employed mortgages are now practically ‘unaffordable’ and that the maximum amount such customers can borrow has dropped by 3% since August.
Many self-employed applicants have suffered at least one mortgage rejection and many feel they are getting a raw deal as quite often, they can earn higher incomes in real terms than many people on salaries can. Nonetheless, mortgage lenders still tend to prefer people in full-time employment because it’s far more simple to understand their income. Being self-employed means your income is less straightforward and people feel penalised by that. Perhaps mortgage lenders are just less willing to handle the extra complexities of dealing with self employed incomes.
New Horizons For Self-Employed Homebuyers
Thankfully, some lenders recognise the difficulties recently created by Covid and adjusted their requirements to reflect this. On Top of its game in this aspect are Bluestone Mortgages, who have updated their credit policy for self-employed applicants; those who have suffered a decline of 10% or more in business income but have since restored their earnings to their former levels, can use their 2019/20 as the benchmark for both affordability and maximum loan amount. So if borrowers can provide three months’ evidence of restored income, it will be treated as the equivalent of a full year for mortgage purposes.
- Shared Ownership
Shared ownership is another possible route for those struggling to get a mortgage on their own. This scheme is most commonly offered by housing associations but private companies are also now creating opportunities. Even with the Stamp Duty extension being extended for another three months, there are many who still find themselves overlooked due to their income/s not meeting a mortgage lender’s criteria, despite many already having a deposit saved and being able to afford the equivalent of mortgage repayments in rent each month. More still needs to be done however, to level the playing field and provide people with alternative routes into home ownership.
- Guarantor mortgages
Guarantor mortgages are another way to encourage a lender to take you on, though it requires having a person who is willing to share the risk.
Guarantor mortgages are more likely to be approved by a lender because the guarantor is promising to meet the repayments iff the official borrower is unable to. The guarantor is required to maintain this situation until the loan to value ratio has reached an agreed point. Typically lenders will want the LTV to have dropped to around 80% before the guarantor is released from the agreement.
Guarantor loans normally still require a deposit and the level required does vary. It is possible to acquire a guarantor mortgage without a loan but these are typically only available if the guarantor uses their own property as security. Risky Business! If the worse comes to worst, the guarantor could lose their home in order to settle the debt owed.
Being self-employed does have many advantages, but obtaining a mortgage with ease isn’t one of them. Nevertheless, in the post-Covid market, new opportunities are gradually emerging and mortgage brokers are ready to help contractors, freelancers and business owners with more optimism. Take advantage of them while you can!
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