If you’re currently researching self-employed mortgages, you might already have learned that securing property finance as a self-employed applicant can be a challenging prospect.
Regardless of your income, the reality is that it’s much harder for self-employed borrowers to secure finance in the UK. And this is complicated even further if you’re seeking interest-only finance, a high loan to value (LTV) mortgage, or have other complicating issues in your background, like being an expat.
But why is that the case?
Understanding self-employed mortgages
The term ‘self-employed mortgages’ is actually misleading, despite being commonly used. There aren’t separate mortgage products available only to self-employed mortgage applicants. Likewise, it’s not the case that self-employed borrowers are barred from accessing mainstream products.
However, it is often much harder for self-employed applicants to secure the finance they are seeking. The difference (and the difficulty) lies in the way self-employed applicants have their affordability assessed.
For PAYE employees, calculating mortgage affordability is relatively straightforward: it’s a case of providing pay slips that demonstrate annual salary, after which the lender will use an affordability calculation to establish how much that applicant can borrow.
For self-employed borrowers, this isn’t so simple. Rather than receiving a monthly salary, you may be earning your income through dividends or director’s loans. You may keep money in your business for various reasons, or you may only have been operating for a short period of time. Alternatively, your earnings might have fluctuated from year to year, making it difficult to establish an ‘annual salary’.
All of this means lenders may struggle to work out how much they perceive you can borrow, creating more risk on their behalf. The way in which you are self-employed could also affect your application: if you’re a sole trader with several years’ accounts, and fairly straightforward income, there shouldn’t be too many problems. But if you’re self-employed through a limited company, and drawing your income in an unconventional way, things will be more complicated.
What does this mean for self-employed mortgage applicants?
Without the right advice and industry contacts, some self-employed high net worth individuals (HNWIs) may fail to secure a mortgage offer. But there are ways around this.
The secret to success is to work with a respected broker. At Articus Finance, we have a wealth of experience in presenting such cases clearly, demonstrating exactly what your income actually means to reassure lenders that you will be able to service a large loan. We can also assist you or your clients setting up a special purpose vehicle in order to secure a limited company mortgage.
We also have exceptionally strong relationships with these lenders, as well as the industry knowledge to place your case in the right place; we know which lenders have an appetite for which sort of client, and can align you with the ideal lender accordingly.
Ultimately, it’s all about being well informed and connected to the right lenders. With those two points covered off, you’ll be pleasantly surprised at what you can achieve.
Searching for a large property loan in the UK? Our guide,Mortgages for self-employed borrowers, may be helpful – or you can speak to an Articus broker today for a confidential consultation.
