By Ed Emerson
Did you know the main reason that start-up companies fail is the same reason people fail to get a UK self-employed mortgage?
In each scenario the start-up company and the mortgage applicant simply don’t understand their customers, or even know who they really are.
And I’ll explain what I mean by that in a moment because a lot of you will be thinking, “Hey, aren’t I the bank’s customer, and not the other way around?”
Your Bank Is Your Customer
Well, let’s start with the start-ups first, so to speak.
Sure, you’ll hear companies describe their own particular failure as being down to things like bad cash flow, slow payments from creditors, lack of company funding, competition and adverse market conditions, client attrition and a variety of other stuff.
But those are all just symptoms of a far bigger problem: Knowing who your clients are and what they want.
What Companies Should Know
If the company really knew who their customers were, then they’d know:
- Where they are
- What they buy
- Who they buy from
- How much they can afford to pay you
- How fast they pay
- How many customers there are
- What motivates them to buy
- Where their interests are (in order to market your stuff in other places they look or hang around), and even
- How much you’ll need to fund the business to survive until it all starts to click.
If you don’t know those answers, or they don’t add up, you simply don’t start the company until you find a business model and strategy that works.
What Self-Employed Mortgagees Should Know
And the same goes for knowing how to get a mortgage when you’re self-employed.
Those who’ve tried and failed blame things like poor credit scores, difficulty proving income, unhelpful banks, lack of mortgage opportunities out there and even complete ignorance of why a lender (or several lenders) said “No.”
But that’s not why they didn’t get the mortgage.
It’s because they failed to understand their “clients” before they started.
How I Screwed It Up
And that’s the key here – you need to look at this like the bank is your client and you need to meet their needs in order to work successfully with them.
Sounds simple, right?
Well, I’ve mentioned in previous articles how a few years ago my own world started to change for the better financially, and I found myself in what I thought was a much stronger position to buy a bigger home for my family.
My various income streams were beginning to add up and grow, and I felt secure in their sustainability.
So I approached the bank where I had personal and business accounts and sat down to discuss what I felt I could afford to pay for a new home.
Boy did that conversation not go as planned!
At the time I felt as though I had been unceremoniously turfed out onto the street. They actually said to me, while rejecting my application right out of the gate, that they would have trouble justifying giving me a mortgage even for the house I was currently living in (and which I’d been paying off for nearly 10 years!).
It was madness.
I was earning five times what I had been when I applied for my first mortgage and these folks couldn’t see that.
The Arrogant Ed
So I went into a big huff and swore bitterly that I’d cancel all of my accounts with that lender once I landed my mortgage elsewhere.
Why? Because any other bank would be “smart enough” to understand how good a prospect I was, and my bank must be just plain stupid.
Well, you can guess what happened.
Three weeks and three banks later I was not only emotionally gutted by the rejections and no closer to getting my next mortgage, but had unwittingly impacted my credit report (which I would find out about later) by applying and being rejected so many times in such a short period of time.
Before You Start
And my biggest mistake, after arrogance, was not thinking about and seeing things from the perspective of the banks to which I was applying before I started.
Even after all the “No’s”, I hadn’t made any effort to adjust or even consider what they needed to accept my application; like whether a particular bank would even lend to someone who is self-employed people, or if a broker was necessary, that bank’s acceptable loan-to-value criteria, checking my newly wounded credit, and trying to see which lenders might be friendly to my cause.
That combination of ignorance, unwillingness and plain old pride in almost any financial endeavour – be that mortgage hunting, investing or company start-ups – usually ends up toxic.
And so it did.
Until one day I decided to get smart.
And those hard-earned lessons will shortly be available to you in order to help you avoid the dramas that I picked up through the process.
Want to know more?
Why not see what HNW Magazine’s Self-Employed Mortgages section here has to offer you in terms of advice, guidance and options.
And look out for HNW Magazine’s report The 5 Steps to a UK Self-Employed Mortgage out soon, and take advantage of the mistakes others have made so that you don’t have to.
Ed Emerson, Editor, HNW Magazine