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 or P60 forms, self-employed lenders require self employed customers to prove their income based on a set of their chartered/certified 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 minimize 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.