Mortgages for the self employed

Mortgages for the Self Employed: The Mortgage Provider Online Guide Traditionally, mortgage providers have been reluctant to lend to self employed people, preferring the lower risk of those on steady, provable incomes. This left many self- employed people with very little choice in lenders despite often having very high incomes. However, with increased competition in the last few years many lenders have introduced ‘self certification’ mortgages.

Self certs (as they are known in the trade) allow the applicant to state their income without providing any further proof of income. Sometimes all that is needed is a reference from a certified accountant of affordability. These mortgages are particularly suitable for people whose income streams are many and variable.

ContentsHow much can I borrow and at what rateWhat should I do now?How much can I borrow and at what rate?

• Interest rates are usually a little higher for non status or self cert mortgages to reflect the higher risk involved for the lender. Statistics show small businesses have a higher chance of going bust than larger, more established ones so the interest rate will reflect this
• Whilst many status mortgages now can go to up to 95% without a higher lending charge, most self cert mortgages require a substantial deposit. Many of the better self cert lenders will not lend above 85% of the purchase price. If this level of loan to value is exceeded, many will decline, apply a much higher interest rate or charge a higher lending charge.
• Mortgage providers lend either according to income multiples or increasingly to affordability calculators. Traditionally, three times your income (less regular commitments) would dictate how much you could borrow. Now it can be as much as seven or eight. The important thing to ask yourself is ‘is it affordable’? It is important to factor in how much your ancillary costs will be: e.g. the cost of running the house, associated insurances. What should I do now?
• Get in touch with a mortgage broker. You have to be very financially savvy to be able to satisfy what many lenders will need to prove your status. Furthermore, some lenders only deal with intermediaries, so your broker will be able to fix you up with a great many more mortgage providers than you could via your own research. Give us a call on the freephone number above.
• Consider a flexible mortgage. These allow you to make overpayments and underpayments- even take ‘payment holidays’. These features can be vital for self employed people who experience peaks and troughs in their monthly income. Some products also offer a drawdown facility where your mortgage functions like an overdraft: you can draw money out from the equity in your home up to an agreed limit. Lenders who provide flexible mortgages include Nationwide, Bank of Scotland and Halifax.