A new mortgage deal aims to help self-employed people ‘bounce back’ and move up the real estate ladder, even if they encountered financial difficulties during the COVID-19 outbreak.
The past few months have been tough for lenders and mortgage borrowers, as banks cut many of their transactions, and movers and remortgagers face uncertainty.
If you’re self-employed, getting a home loan has always been a bit trickier, but how has COVID-19 affected your chances of being accepted?
Self-employed deal helps borrowers bounce back
With the real estate market now Open again, banks and mortgage companies are starting to loosen the straitjacket and come up with new offers to tempt buyers.
This week, the Beverley Building Society changed its criteria for independent borrowers as part of its “rebound” mortgage initiative.
The lender says it will now consider independent applicants with only one year of accounts if they borrow up to a maximum of 75% loan-to-value ratio (LTV).
Applicants with established businesses can borrow up to 80% LTV, and Beverley will offer the first year on an interest-only basis to help borrowers manage their cash flow.
Beverley says independent borrowers made up 50% of her loans last year, and lending decisions will be based on transaction history, qualifications, experience and future outlook.
The move could offer a significant boost to self-employed workers, especially if other lenders follow suit by easing some of their restrictions in the coming months.
How many mortgages are available for the self-employed?
There are currently only 36 specialty mortgages offered to the self-employed or entrepreneurs, according to data from Moneyfacts.
But don’t let that put you off. Of the 3,939 mortgage loans on the market, 3,877 are theoretically accessible to self-employed people.
The specific criteria adopted by lenders may be opaque, but most will require you to have at least two years of audited accounts before applying.
A handful (including Lloyds Bank, Mansfield Building Society and Kensington) will consider applicants who have only been in business for a year.
The table below shows the number of years of accounts you will need before applying for a mortgage.
|Accounts required||Number of mortgage transactions|
Is it harder than before to get a home loan?
COVID-19 has had a big impact on the mortgage market, so we spoke to two mortgage brokers to find out how things have changed for independent borrowers.
Alex Winn from Habito told Which? that independent borrowers now face “more hurdles than ever before”.
He says some banks such as NatWest have introduced pre-application questionnaires and many now use manual underwriting for independent applicants.
Additionally, lenders are asking independent applicants to provide details of their turnover for the past three months in addition to historical accounts, to see how their income has been affected by COVID-19.
David Hollingworth of L&C reaffirmed that independent buyers might need to provide additional information to prove to lenders that the mortgage will be “affordable and sustainable” and that banks now generally take a “more individual approach” to independent borrowers.
He says lenders have “continued to support borrowers wherever they can and have quickly adjusted their criteria,” with many willing to accept applications from people who have used them. Self-Employed Income Assistance Scheme (SEISS), subject to the provision of evidence.
How To Improve Your Mortgage Chances
If you are an independent borrower, there are steps you can take to improve your mortgage chances.
Use an accountant
Some lenders will only review applications if you have up-to-date accounts signed by a chartered or chartered accountant.
It’s common for accountants to legally minimize your reported income so that you pay less tax, but be aware that lower profits on your accounts could affect how much you can borrow when applying for a mortgage.
Gather your papers
It is essential to gather your annual tax calculations for each year of accounts.
If your lender requires three years of accounts, you will need to provide three SA302 forms.
If you file your taxes online by self evaluation, you can print them by logging into your account. If you filed your taxes by mail, you will need to ask HMRC to send you the forms.
Save a larger deposit
A biggest deposit Your chances of getting a mortgage will always increase, but this is especially the case in these uncertain times.
It’s difficult to get an open market mortgage with a deposit of 10% or less right now, so as a self-employed borrower, it may be worthwhile to aim for a deposit of at least 15%.
If you haven’t been self-employed for a long time, you may find that lenders will only consider you if you save a larger deposit.
Get your finances in order
No matter what your job, it’s important to get your finances in order before you apply for a mortgage.
Make sure everything is correct on your credit report, pay off all unpaid debts and close all dormant accounts.
Pay attention to your spending habits the previous year apply for a mortgagebecause lenders are more likely to take it into account.
Talk to a broker
Failed mortgage applications will leave a mark on your credit report, so don’t apply until you’re pretty sure you’ll be accepted.
One option is to talk to the whole market mortgage broker, who will be able to assess your finances and identify the lenders most likely to offer you a mortgage.
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