Mortgage process for the self-employed

This article is part of
Guide to advising the self-employed

Mortgage process for the self-employed

Mortgages have been harder to come by for the average worker on an average salary.

Latest statistics from Payscale put the average UK salary for a permanent worker at £25,458. 

For the self-employed, a salary is 'meaningless' as some months there will be huge profits and some months there may be a lot of belt-tightening, but for the sake of comparisons let us assume that, net of taxes, the average self-employed person brings home £25,000 a year.

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With the Halifax House Price Index puts the average UK house at £220,962 as at the end of April 2018, it is clear there is a huge disconnect between the ability of many self-employed Britons to be able to save enough for at least a 10 per cent deposit on a property.

Of course, it is not impossible for someone to save up, and there are government schemes such as Help to Buy and Shared Ownership schemes, which have been put in place to help more people onto the housing ladder.

However, there can be additional complications for those who are self-employed when it comes to getting a mortgage, which need to be overcome.

Irregular income

The biggest issue is the fact many self-employed people generally have an irregular income stream, rather than "balanced and sustainable", which can be off-putting for some lenders.

Zane Groves, consultant for LightBlue UK, comments: "Self-employed mortgages are generally regarded as a bit of a problem area."

That said, he is clear there is no shut-door policy, although there is no specialist lender catering only to the self-employed.

He states: "There's no such thing as the self-employed section, or a self-employed lender. All lenders cater for individuals who work for themselves."

Of course, the longer your clients have been in business, and the more paperwork you can show to lenders, the more likely your clients are to get an approval.

Mr Zane explains: "The longer your track record, the better and if you have more than two years of accounts the choice of lenders available is substantially more than just one year. 

"It is important to know which lender does what."

Martin Stewart, director at London Money, agrees the longer the client has been in business, the better-received they will be by a lender.

"The one thing we say to clients is that no mortgage broker wants the phone call that goes: 'I went self employed two months ago. Can I get a mortgage?'."

He advises that any major life change needs to come about only once you have secured your finances, otherwise you will probably spend 12 to 24 months being forced to do a lot of DIY on a house you probably don’t want to live in.