Mortgages for Self Empoyed
Getting a mortgage as a self-employed person can be a bit more challenging compared to a person who is an employee in a company or in another business establishment. The finance company or the bank giving you the mortgage needs to make sure that you’re going to be able to pay back the amount. An employed person can show monthly pay slips, but a self-employed person needs to show documents to prove that he or she has a steady income and consequently, will be able to pay back the mortgage amount.
Is it difficult to get a mortgage as a self-employed person?
If you have been reading about how difficult it is to get a mortgage for the self-employed, don’t get jittery. Provided you can prove that you can pay back the loan amount and you have the documentation to prove, you are just like any other business opportunity to the lender.
Whether you are a small business owner, a contractor, or a freelancer, with proper documentation you can considerably increase the chances of having your mortgage application approved. Of course, there are some mistakes you should avoid.
First of all, if you want to make it easier to get a mortgage as a self-employed person, your accounting books must be in impeccable order. For that, if you are looking for an accountant in Aberdeenshire or Banchory, do schedule a telephone call with us and we will make sure all your financial accounts are in order.
Coming back to the topic, as mentioned above, when you are employed, you have got your pay slips with you. Most of the accounting work, including tax deductions, are done by the accounts department of the employer. You may have to file your returns but since everything is well recorded, things are easier.
As a self-employed person all the details that you submit must be maintained by you. you need to prove that you have a reliable income. Your income as a self-employed person may fluctuate. Therefore, applications for mortgages are subject to greater scrutiny by the lenders.
Do lenders discriminate between the employer and the self-employed when approving mortgage applications in Scotland or Aberdeenshire?
No, they don’t. As mentioned above, provided you have a consistent proof of income, you are just another business opportunity to the lender.
Employed or self-employed, doesn’t make a big difference to the lender and you are entitled to get your mortgage. They just need to know about your ability to pay.
The bad rap that came with self-certification mortgages
The concept of “self-employed mortgages” or “self-certification mortgages” was abolished in 2014, but before being abolished, they had done considerable damage.
Self-certification mortgages allowed people to borrow money without having to prove their income. They would simply tell the lender that they were earning enough money and that was that – it was taken as a proof.
As it happens in such situations, many people borrowed huge amounts of money without having the wherewithal to pay it back. The lenders incurred massive losses.
Consequently, the Financial Conduct Authority outlawed self-certification mortgages in 2014. Although self-certification mortgages are no longer in practice, they made many lenders wary of giving mortgages to the self-employed. Hence, extra precaution.
Maintain your financial records as a self-employed person
Here are a few things you can do to increase your chances of getting a mortgage as a self-employed person.
- Take the right advice: In most of the cases the problem is not with your income, but the lack of documentation or the lack of proper way of maintaining your financial records. Talk to a trained accountant.
- Maintain a good credit score: Credit score records are available to all the lenders, and they can immediately find out your track record if you have previously taken loan or used your credit card but haven’t been making payments on time.
- Keep your financial records in order: Regularly work with an accountant to maintain all the entries. Digitise your accounting system.
- Pay off your debts as early as possible: Don’t just make minimum payments for your credit card. Whenever you have spare cash, clear your payments.
Conclusion
The key to getting your mortgage approved as a self-employed person is presenting indisputable records of your financial situation. You just need to convince them that your monthly income is enough to enable you to pay the EMIs. Whether they want two-year records or three-year records it differs from lender to lender. Start preparing in advance. Even if right now you are not contemplating going for a mortgage, in future you may. It is better to closely work with a trained accountant who can help you keep your records in order so that you are always ready when you need to apply for a mortgage.