Finding the Best Deal When You are Self Employed
There is a common belief that lenders are prejudiced against the self-employed. However, there are some great mortgage options if you know where to look.
A combination of tough economic conditions for employers and new opportunities for online businesses have combined to result in a substantial increase in the number people choosing to forge their own path as self-employed sole traders and freelancers over recent years. In fact, since the turn of the millennium, the number of people registered as self employed has increased by almost 50 percent from 3.3 million to 4.8 million.
Many feel that this places them at a disadvantage if they want to get a foot on the property ladder, and are worried that lenders will see them as a bad risk if they cannot produce payslips and employment contracts. According to a mortgage broker in Chelmsford who deals with self-employed clients every day, there is an element truth in this – certainly high street lenders will take a more critical look at the finances of an entrepreneur, and they might even be reluctant to deal with those who operate in the more fragile sectors of the gig economy.
However, a basic principle of market forces is that where there is a demand, someone will capitalise with a supply. Lenders are rapidly catching on to the fact that the self employed need financial products just like everyone else.
Get expert advice
With so many lenders out there, it is always worth talking to a professional mortgage broker to get the best picture of what deals are on offer. When you are self-employed, this is doubly important. A good broker will be able to look at your specific circumstances, for example how long you have been trading, the kind of business you operate and what condition your overall credit file is in, and immediately be able to zero in on the lenders that are geared towards your need. Equally importantly, they will know which ones are not even worth looking at.
What will the lender want to know?
Conceptually, the lenders need exactly the same information in order to offer you a deal as they would if you were in employment. They will need to know that you are capable of making the monthly repayments, and that they can be reasonably confident that you will continue to be able to for the duration of the mortgage period.
They will want to see your accounts, and most will insist that these have been prepared by a chartered or certified accountant. From a risk perspective, the longer you have been trading, the better – if you can provide accounts showing healthy revenues for the past three years, the lenders will be queuing up to make you an offer.
What if you’ve only just begun?
If you recently set up in business on your own, three years’ accounts will not be an option, but don’t panic. There are specialist lenders out there who will still be interested in working with you even if you’ve only been trading for a year, provided you can demonstrate that the business is bringing in money and is sustainable. Just keep in mind that in doing so, they are increasing their risk exposure, and so the interest rates will inevitably be set a little higher.