One of the lasting legacies of Covid-19 may be that more people turn to self-employment. With many people set to lose their jobs, being self-employed may become more appealing in future as it potentially gives you more control over your situation, including where and when you work. However, while it may mean more freedom, it can make it trickier to get a mortgage and self-employed borrowers need to plan ahead well before they actually apply for a loan to ensure they place themselves in the strongest position possible.
Indeed, the self-employed have been hit as hard by the consequences of the pandemic as anyone else, with many having to apply for a cash grant via the self-employment income support scheme (SEISS) to tide them over. Around £7bn has been awarded in grants under the scheme, indicating how many self-employed workers are suffering and this could impact their mortgage affordability in the future. Some lenders are now referring self-employed applications to their underwriters who will delve in more detail into a business’s track record, stability of the sector, cash flow and how likely it is that they will return to normal profitability.
Before the pandemic, the growth in number of people becoming self-employed meant lenders had got better at taking various means of income into account when deciding how much to lend. As long as the self-employed can prove their income to the satisfaction of the lender, it shouldn’t be any more difficult to get a mortgage than it would if they were employed. If you have a well-established business, with evidence of strong earnings over some years, then lenders will be keen to lend to you. But if you are relatively new to self-employment i.e. you have become self-employed in the past year or so, then most lenders won’t consider your application.
Indeed, most lenders, although not all, want to see evidence of at least two or even three years’ worth of accounts. Some will use the lower of the average of the last two years’ net profit, or the most recent year’s net profit, or the confirmed government income support amount – whichever is the lowest. Other lenders are asking for the last three months’ business bank statements on top of everything else to help assess what state the business is in.
To make matters even more complex for self-employed borrowers applying for a mortgage, lenders are adapting their own criteria and approach so it can be difficult to identify the best lender for your particular circumstances. This is where AWS Financial Services can help. We are whole-of-market so will look at all the lenders and identify those most likely to be sympathetic to a self-employed borrower’s situation. Our experienced advisers know which lenders best understand the way the self-employed are paid, whether that be via dividends, retained profit in your business, or an offshore trust.
Another issue which often arises for the self-employed is that if you use an accountant to complete your tax return, they may try to minimise your tax liabilities by downplaying your income. While this is completely legitimate it won’t help your chances when getting a mortgage so it is worth speaking to AWS Financial Services at least six months (and preferably more) before you need a loan so that we can assess the likely level of borrowing you will be able to achieve. As with everything, the longer you plan ahead, the better your chances of getting the mortgage you require.