These days, the art of mortgage broking means looking way outside of the proverbial box in coming up with suitable options for clients who feel that the average high street lender no longer seems to have the time, expertise or inclination to help anyone who doesn’t fit rather neatly into a tick box.
Step forward the ever-increasing legions of the self-employed, freelancers and contractors who found that slaving away for the same bad-tempered boss every day does not fill them with the joys of spring every Monday morning.
With advances in technology, globalisation and the more transient nature of peoples working lives; this added flexibility, not to mention the pride and sense of achievement of running your own business, appeals to more and more people.
However, when I speak to many clients working in this way about mortgages it is always the same response, “I don’t think I would be able to get one of those, I don’t tick the right boxes”.
It is true that things did become very tough for a while for anyone not in a stable 9-5 environment, but as ever, the reality is not always as bad as the myth.
We are proud to say that we work hard to provide professional advice to hard-working business owners from all walks of life, who are too busy running their own businesses to run around High Street bank branches wasting hours of time answering endless questions about how many coffees they buy a week!
In fact, Mortgage brokers, who now account for almost 75% of all mortgage applications in the UK, continue to educate mortgage lenders and as a result we now have lenders who are good at understanding the self-employed, contractors and freelancers and offer a wide range of options dependent on how you choose to get paid.
Although there is a great deal more work to be done, lenders are finally starting to become more adaptable in the way the deal with borrowers of this type. Over the past few months we have seen several traditional lenders launch mortgage products for contractors, taking into account their daily rate and multiplying that by 5 and then 46 or 48 weeks to get an “annual income” figure. Others will look at borrowers even in their first contract providing they have a history in their current profession.
We have also seen more new lenders enter into the self-employed market, requiring as little as one year accounts again for those with a track record in an industry or with the help of an accountants projection for the coming year.
It will help enormously if your accountant is properly qualified, for example ACCA, rather than just a bookkeeper, especially as some lenders will be able to work on just an Accountants Certificate rather than leafing through pages of accounts.
To ensure a smooth process, it really is all about the paperwork. If you do think you will be applying for a mortgage in the near future it really will pay to get organised early, especially if you are self-employed. Getting it right day 1 can not only save weeks of processing but can make the difference between getting the home of your dreams or not.
Obviously you won’t have access to some of the documents lenders need for those that are employed and while you may have 3 months of pay slips as an employed director, if you have a shareholding of 20% or more lenders will treat you as self-employed and want to see accounts.
The starting point for most lenders is to provide two or even three years of accounts and/or your last 2 or 3 years SA302’s and associated Tax Calculations as well, (although as mentioned above this is changing). These can be obtained from your accountant or downloaded from your personal account online with the Inland Revenue directly.
If you are a contractor, keep to hand as many of your old contracts as possible as some lenders will want to see a history, whilst others will want a nice CV. If it is your first contract, again there are options if you have been in the same industry for some time.
Getting your bank statements in order as well, making sure they are conducted within overdraught limits with no returned items or peppered with pay-outs to loads of betting firms for 3 to 6 months before application will also help.
Lenders these days’ work on affordability rather than straightforward income multiples, but if you have non-standard income the question is what will they define as your “income”?
For contractors, some lenders will work off the latest contract, essentially taking the day rate, multiply it by 5 for a weekly rate, then by either 46 or 48 to get an annual income.
There are a variety of methods lenders employ to assess income if you are self-employed and it is imperative to find a mortgage broker experienced in this field in order to not only maximise your chances of getting the amount you need, but also to avoid being stuck with the wrong product for you due to the “laziness” of the broker.
Most lenders standard approach is to take an average of the last 2 – 3 years’ net profit, but some will now look at the most recent set of accounts or even just one year’s accounts.
Where some lenders differ is that whilst some will just look at the net profit, others will look only at salary and dividends. This may work for some borrowers, but this means they will not take into account any retained profits.
Where there are retained profits that do need to be taken into account, it is important to identify and approach the handful of lenders who are happy to consider share of net profit, retained or otherwise, as income figures.
Whilst it may seem to be a veritable minefield, the good news is that there ARE options for the self-employed, in fact, many more than there have been for a number of years so do not automatically assume that you cannot purchase your dream home or remortgage onto a much better rate.
Coreco are here to help.
Have you heard about IPSE, the Association of Independent Professionals and the Self-Employed? As a Coreco client you can qualify for discounted membership.