Land that loan: application tips for the self-employed

Sold sign. Together Money mortgage advice for self-employed

Small business owners can find it hard to obtain mortgages from high-street lenders. Richard Tugwell, group intermediary relationship director at Together, advises on how to beat the barriers to borrowing

Richard TugwellThe self-employed workforce has been growing at a remarkable rate over the past few years, as people across the UK are drawn to the freedom, flexibility and potential rewards of being their own boss. Many of these – from CEOs and partners at professional services firms to doctors and dentists – have become directors of limited companies.

Although the government and the private sector have generally supported this boom, the mainstream banking industry has failed to keep up with the pace of change. As a result, self-employed directors often find it harder than those in full-time employment to obtain mortgages and other types of loan. Luckily, there are numerous simple, yet effective, things that the self-employed can do to give themselves the best possible chance of making a successful application.

Use a broker

Seeking professional advice is invaluable for self-employed people when it comes to finding a mortgage. Tapping into a broker’s specialist knowledge will give you access to far more information than web research alone would elicit on the full range of lenders and products available to you.

Check your credit record

If you have any adverse credit history, it’s worth approaching specialist lenders. High-street banks tend to have strict criteria in this area, but credit blips or even county court judgements made against you and/or your business won’t necessarily preclude you from borrowing from a specialist.

Get your books in order

To give yourself the best possible chance of success, you should collate all of the necessary paperwork before applying. It’s a good idea to consult your accountant, who will advise on the accounts and proof of income required.

Typically, self-employed people must provide more income history than those in full-time employment need to. Many high-street lenders require at least three years’ trading records, compared with three months’ pay slips from employees. If you’ve recently become self-employed and you haven’t been in business for long, it’s worth talking to a specialist instead. Some will accept one year’s accounts and income projections when reviewing loan applications.

Maximise your deposit

Most banks are restricted in what they can lend by the size of the applicant’s deposit. First-charge mortgages have a maximum loan-to-value ratio (LTV) of 75 per cent and second-charge mortgages have a maximum LTV of 77.5 per cent. If you’re falling short of this, you may need to increase your deposit. If this isn’t possible, speak to a specialist lender, as some will offer mortgage rates that are less dependent on your LTV.

Never had a mortgage? Don’t worry

Being both self-employed and a first-time homebuyer can add an extra layer of complexity to the loan approval process, since you don’t have a history of mortgage repayments. If you are struggling to obtain your first home loan, it’s worth considering what other options are available, including shared ownership, the right-to-buy scheme and specialist mortgage products.

Whatever steps you decide to take, it’s important to remember that, even if you aren’t approved for a mortgage by a high-street lender, there are still several options open to you to get the finance you need.

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Director commercial and sales

Director commercial and sales

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