A mortgage is a huge commitment for both the lender and borrower, and because of this, a lot of care and attention is given by both parties to ensure that a mortgage will be available at a rate which the borrower can pay for decades.
Often this relies on evidence of constant and consistent work, which can be a problem for the 4.3m people who are self-employed, who at times can have as much issue finding a lender as someone looking for a low credit mortgage.
Why is this? Exactly how hard can it be? And are there ways for a freelancer to make it easier for themselves to get on the property ladder?
Why Do Self-Employed People Struggle To Get Mortgage
The reason for this is that self-employed income can be seen by lenders to be more inconsistent without an employer to vouch for the person borrowing.
This makes them riskier investments, and when the average price of a property is only increasing, this increases both the amount they will need to lend and also the risk.
Exactly How Challenging Is Getting A Mortgage When Self Employed?
There are some specialist lenders, but for mainstream lenders, there may be a few more hoops you need to jump through to prove your income, and this can delay your ability to get a mortgage for potentially years.
You will need to provide, at an absolute minimum:
- At least two years of certified accounts,
- At least two years of SA302 forms or another tax year overview depending on how you manage your taxes,
- The most recent six months of bank statements,
- In some cases proof of dividend payments retained profits or upcoming contracts may also be required.
This is a lot of additional proof that is not usually required for people who are in other forms of employment.
However, if you can endure the delay, there are advantages to waiting that can make it easier to get onto the property ladder.
An enforced two-year delay gives you time to improve your credit score if necessary to help boost your chances of getting the best rate.
As well as this, save up to get a larger deposit, if possible, as the lower the loan-to-value of your property, the more attractive loans you can get.
It is generally agreed that 20 per cent is the sweet spot where you will get the most attractive mortgages. However, every 5 per cent you can add to the deposit rate improves the deal considerably
