Non Standard Mortgages - Self Employed
Self Employed Mortgages
The realm of self-employed mortgages can be a little confusing.
As with other sectors of the market, the various different
products often get called various different things: self-employed
mortgages, self-certification mortgages, non-status mortgages
and so on. But to further confuse matters, there is substantial
crossover between the different types, with some self-certification
loans open to people in full time employment and others
restricted only to those who are self-employed.
Contrary to popular belief, a large number of self-employed
workers are actually able to get a normal mortgage from
a traditional lender. However, it isn't easy. Most mainstream
banks and building will classify self-employment into two
types - those people who have been self-employed for more
than 3 years and those who have been self-employed for 3
years or less.
Lenders normally rely on the salary of an individual to
assess the means at their disposal for repaying the loan.
But without the usual PAYE slips of P60 forms, self-employed
lenders require customers to prove their salary based on
their accounts.
They generally require the self-employed to have at least
3 years' worth of audited accounts showing consistent profitability.
If this can be shown - and plenty of self-employed people
can - then there is not usually a problem in finding a lender
willing to loan money on normal terms.
However, it is not always so straightforward. The first
problem is that the need for 3 years' can often mean that
the borrower needs to have been trading for a lot longer.
Since accounts are prepared annually in arrears, this means
that a minimum of 4 years solid trading history is usually
required in order to get a mortgage, probably a lot more
when you consider that most businesses don't make a profit
in their first two or three years.
Secondly, many business owners pay themselves nominal salaries,
but often take substantial dividend payments or a share
of the profits, in order to minimise their tax burden. Furthermore,
modern accounting practices are often aimed at reducing
the apparent income of the individual concerned, which can
often leave their income looking, on paper at least, to
be pretty minimal. So while many applicants may actually
be earning big money, they will still struggle to get a
mainstream mortgage, even if they do have the necessary
number of years' worth of accounts.
For those self-employed borrowers who are unable to get
a mainstream mortgage for one of these reasons, or because
they have simply not been trading for long enough, the only
realistic option is to go for a self-certification
mortgage.
