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A Guide To Self-Employed Mortgages In 2024

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Navigating the mortgage market as a self-employed individual can feel like a daunting task, especially with the uncertainties of the current cost-of-living crisis. To set yourself up for success, it’s crucial to familiarise yourself with the available options and have a broker guide you through the process.

Why Self-Employed Mortgages Can Be Different

Self-employment has been on the rise for the past few years since dropping off during Covid. With projections suggesting a continual rise in self-employment figures, it’s an opportune moment to reevaluate your financial choices.

Despite the term, a “self-employed mortgage” implies a separate category of mortgages. In reality, lenders generally offer a similar array of mortgage products regardless of employment status, albeit with variations based on individual circumstances. A few lenders however do offer specific products for those that are self employed.

Self-employed applicants often encounter heightened scrutiny from lenders due to the perceived instability of their income. Consequently, lenders typically request additional documentation to prove the borrower’s financial reliability and capacity to meet mortgage obligations.

  • Income Fluctuation: Lenders prefer steady income to assess repayment ability. Self-employed income can vary, making it trickier for lenders to gauge your financial stability.
  • Trading History: A short self-employment track record might raise concerns about your business’s longevity.

Overcoming Challenges: How to Get Approved

Here are some steps you can take to increase your chances of securing a mortgage as a self-employed individual, whether you classify yourself as a sole trader, freelancer, limited company, or contractor.:

  • Be Prepared: Gather your documentation well in advance, including:
    • Tax Documentation: At least two years of finalised accounts, SA302 forms (or tax year overviews), and business bank statements.
    • Business Plan: A well-structured business plan outlining your income projections and future strategies demonstrates stability and growth potential.
    • Proof of Income: Show consistent income over the past few years. If you’ve had slow periods, be prepared to explain them.
  • Maintain a Good Credit Score: A strong credit history assures lenders of your responsible financial management.
  • Consider a Larger Deposit: A larger down payment reduces the loan amount you need to borrow, making you a less risky applicant in the lender’s eyes.
  • Speak to a Mortgage Adviser: A knowledgeable mortgage adviser, experienced in dealing with self-employed applicants, can be your biggest asset, and can offer invaluable guidance irrespective of how long you have been self-employed. They can guide you through the application process, recommend lenders with favourable terms for self-employed borrowers, and find the best possible interest rate for you.

Additional Tips for Self-Employed Mortgage Applicants:

  • Minimise Personal Expenses: Lenders consider your overall financial picture. Avoid unnecessary debts and maintain a healthy balance between business and personal finances.
  • Be Transparent: Provide clear and complete information to your lender. Don’t hesitate to explain any financial situations that might raise questions.
  • Shop Around: Compare rates and terms offered by different lenders. Don’t settle for the first option you come across.

Conclusion

While securing a mortgage as a self-employed individual might require extra effort, it’s certainly achievable. By planning strategically, gathering the necessary documentation, and seeking professional guidance from a mortgage adviser, you can successfully navigate the mortgage market and find the perfect home loan for your needs.

To explore the options available to you, don’t hesitate to reach out to one of our advisers today.

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