The 5 Step Formula for Getting a Mortgage (When You’re Self-Employed)

Introduction: Isn’t It Ironic…

Let’s see if this sounds familiar: You go out and start working for yourself, you make more money for it, but now the UK’s mortgage lenders see you as a problem?

There’s no justice, eh?

In fact, it sometimes feels like the banks are actively working against you.

The reason for this is simple: The vast majority of banks see those who operate as self-employed, consultants, company founders and company directors (with significant shareholdings), as a risky proposition.

Why? Because your mortgage request just doesn’t fit neatly into their traditional full-time employee PAYE application process.

And that immediately turns you into an unknown commodity, someone outside the standard application regime, and leads to either:

  • additional scrutiny, a lengthier application processes and a higher probability of a “black mark” on your credit report due to a failed application, or
  • the rejection of your mortgage application outright simply because you’re not a full-time employee and they don’t know how to “rate your application and earnings.”

I’ve been through this process myself and I’ve heard all the justifications before. And I can tell you from experience that what happens next is you end up frustrated, probably with a property deal on the line and a likely rejection “black mark” on your credit report, which you then defiantly carry with you to every lender thereafter.

And then the whole rejection process repeats itself until a mortgage or re-mortgage becomes impossible, at least in the near-term. Ouch!

Now, here’s the really bad news: It was all my fault.

Why? Well, because I was, by definition, acting like an insane person – someone who repeats the same process over and over and always expects a different result.

Eventually, after receiving my share of bruises, I took a step back and applied a bit of business thinking to the process. That’s when I realised it doesn’t have to work this way.

The formula I discovered is detailed in the pages that follow, and it started with two key principles:

1) I needed to think about the process differently, and

2) I needed to follow a few basic rules in order to exponentially improve my odds of getting a mortgage or re-mortgage as a self-employed person. And the same applies to consultants, directors etc.

HNW’s 5 Step Formula for Getting a Mortgage When You’re Self-Employed is the result of that experience, and a lot of research by myself and my team.

 

In the pages that follow I’m going to show you what to do (and what not to do), give you specific steps to follow, tell you which banks to approach in the UK (and which ones you shouldn’t), and how you can avoid the most common pitfalls.

 

And there’s something else you should know too – something very, very important:

 

Since March 2009, when the recession ended and the markets started to turn, we have been in the lowest interest rate environment in history.

 

That means borrowing money has never been cheaper than it is right now.

 

And while I can’t see the future, it’s highly likely that those rates will, sooner rather than later, start to rise again and make borrowing money far more expensive.

 

Read on, good luck, and pass it on!

 

Ed Emerson, Editor and Managing Director, HNW Magazine   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Why You Should Read This Report Before You Do Anything

 

Now, before I continue I want to say a few things about HNW so that you know who you’re listening to and why this should be of interest.

 

I co-founded High Net World (HNW) Magazine back in 2010, because I’m passionate about spotting and sharing wealth opportunities and the paths to realising them.

 

The publication and website was designed for those of you who want more out of life than to simply work for someone else. You may be interested in having a look through some of the things I’ve discovered along the way at www.hnwmagazine.co.uk

 

But in the process of writing about things like investing, day trading and growing a business I also came to realise that anyone on the entrepreneurial, self-employed or even company investing journey will face very tough decisions, many of which would benefit from the guidance of those who’ve made them before.

 

Learning from other people’s victories and bruises can help you win more battles and even avoid a few unnecessary scars.

 

It was my own desire to have more freedom and wealth than any day job could ever offer me that put me on the entrepreneurial path, and drove me towards building HNW from a part-time endeavour (early morning and late evenings) into a mainstream full-time business.

 

And as my world started to change I wanted to help others understand that business journey – the successes and the pitfalls, warts and all.

 

But I also wanted to share my experiences about the more personal problems you can and will face if you’ve decided to be an entrepreneur or a day trader, self-employed or a consultant.

 

Unsurprisingly, one of the main hurdles comes down to finance. And I only hope the lessons I learned through this process, particularly when it comes to mortgages, can help other people avoid the drama and sleepless nights that I had to endure.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Bruises I Suffered (So That You Don’t Have To)

 

I designed this particular report with one clear goal in mind: To give freelancers, contractors, company founders, new business owners and self-employed folks the tools to drastically improve their chances of getting a mortgage. It’s that simple. And this is just one of many such reports that HNW is producing in 2016.

 

The objective is to give something back.

 

It’s like one of my favourite actors, Kevin Spacey, once said: “I feel it’s a responsibility for anyone who breaks through a certain ceiling…to send the elevator back down and give others a helpful lift.”

 

Well the self-employed mortgage success was my personal ceiling, so here comes the elevator.

 

A few years ago when my own world started to change for the better financially I found myself in what I thought was a much stronger position to buy a bigger home for my family. The 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. So I bitterly swore I’d cancel all of my accounts with that bank once I landed my mortgage elsewhere, because any other bank would be “smart enough” to understand how good a prospect I was.

 

Well, it turns out the bank wasn’t the dumbest person in that meeting that day; I was.

 

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.

 

And my biggest mistake, after arrogance, was not thinking and seeing things from the perspective of the banks to which I was applying. 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 they even lend to self-employed people, if a broker was necessary, 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 funding – usually ends up toxic.

 

And so it did. Until one day I decided to get smart. And those hard-earned lessons are now for you to chuckle over, and help you avoid the dramas I had to overcome in order to share this with you.

 

Think about it: One of the main reasons companies fail, be they start-ups or long-established businesses, is because they don’t keep current with what their customers want.

 

A lot has changed in the decade or so since I first took out a mortgage, and I was only beginning to understand that the free-wheeling times of the 1990s and early 2000s had now been consumed by lending paranoia and legislation.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Key Mortgage Changes & Why You Need To Know Them

 

Whether your goal is to get a mortgage, make more money, attract new customers, or even start a new business, if you don’t understand the motivations of the audience(s) you want to work with, the less likely it is that you will succeed.

 

In the UK mortgage arena there are some things you need to know right from the start to keep you grounded and informed:

 

  • following the lax regulations that preceded the 2008/09 recession, on 26 April 2014 the UK mortgage industry saw new rules put in place by the Financial Conduct Authority (FCA); the largest changes to regulation in a decade through the Mortgage Market Review (MMR)

 

  • mortgage interviews now take a lot longer than they used to, and are far more detailed in order to assess mortgage product suitability and the borrower’s individual needs and circumstances. In fact, sometimes these are even split into two separate interviews

 

  • even people who wish only to make changes to their existing mortgages will likely now be required to go through an advised process, and a new affordability assessment

 

  • lenders will apply an interest rate “stress test” to ensure loans will still pass affordability requirements, and even consider the impact of impending retirement and any potential for redundancy

 

  • Any borrower’s expenditures will be more closely scrutinised, including normal spending like credit cards, other loans and even your spending habits and other commitments

 

  • interest-only mortgages are still possible, but borrowers must be able to demonstrate a credible repayment strategy to satisfy the loan at the end of term, and the ability to support any additional costs for doing so, and

 

  • as previously stated: The UK is currently operating in the lowest interest rate environment in more than 300 years. The 0.5% base rate announced on Thursday 5 March 2009, brought about an opportunity to borrow money at historically low levels of interest. We may never see these rates again, at least not in this lifetime.

 

Now, if some of that sounds daunting, let me tell you that the opportunities right now far outweigh the effort.

 

But you have to follow the steps and keep your goal in mind.

 

Here’s why…

 

 

 

 

 

 

 

 

 

The Cardinal Sin Of Mortgage Applications

 

The first step towards a successful mortgage application when you’re self-employed or viewed as outside the traditional PAYE employee spectrum by a lender is to apply your business sense to your situation.

 

As I’ve already said, you can’t have a successful business unless you know what your customers / clients want and need.

 

The same applies to this process. Except in this case, instead of your company’s client base, the audience you’re appealing to is the banking community, and all those organisations they’re linked with through your mortgage application.

 

Therefore, you need to look at this process from the bank’s perspective. And if you simply assume lenders will understand how to classify your earnings and see them sensibly, you’ll be forever at odds with the lending community.

 

So if you’ve already been rejected, don’t make the mistake that so many other entrepreneurs and self-employed people do immediately afterwards; apply to several other banks in exactly the same way. That behaviour won’t help you buy a new, bigger or second or third home.

 

It’s the Cardinal Sin of mortgage applications – where ignorance meets arrogance.

 

Now, for the sake of perspective, HNW Magazine has for many years railed against the improprieties and unnecessary bureaucracy of banking and investment institutions from Manhattan’s Wall Street all the way to Princes Street in Edinburgh.

 

But we also understand the importance of being clever enough about the mortgage and funding process to swallow a few reality pills before proceeding down this road, including that:

 

  • banks were never designed to operate as high or even medium-risk investment institutions by gambling on your personal dreams (as recent recessions have shown), and
  • Understanding how a bank works and “thinks” dramatically increases your chances of successfully working with one or several of them.

 

Your willingness to think-like-a-bank can be the difference between getting a mortgage, and being forever perplexed as to why you didn’t.

 

The 5 Step Formula for Getting a Mortgage When You’re Self-Employed that follows is the guidance you’ll need to help you navigate this process.

 

And like any process, you have to follow the steps to successfully complete it.

 

 

 

 

 

 

You’ll Never See Mortgage Deals This Cheap Again

 

I think I’ve mentioned already that it has been almost three centuries since interest rates were last this low. What that means is that this is probably the cheapest mortgage borrowing opportunity in history – the likes of which we are highly unlikely to ever see again in our lifetimes.

 

As such, this may be the best possible time to get locked into a long-term low interest rate mortgage and take advantage of it before the seemingly inevitable increase in the cost of borrowing (rising interest rates).

 

And there are four good reasons why interest rates won’t stay this low forever:

 

1) The withdrawal of cheap funding for home loans through the UK government’s Funding for Lending Scheme, and the new onus on banks to have to source more expensive cash to lend out, means that increased cost will have to be passed on to customers.

 

2) The costs for implementing the new MMR rules will also need to be passed on to customers by the lenders, raising mortgage rates and/or fees to help pay for higher staff costs, and the expense of changing IT systems, processes and associated compliance.

 

3) While caps on loan-to-value ratios in the mortgage market were designed to help prevent a return to the risky and unsustainable lending of yore, house prices are rising and that is making the loan-to-value ratio for customers more difficult to achieve. Higher acceptable lending risks means higher loan rates.

 

4) The on-going economic recovery since the 2008/09 recession has been deemed the slowest in history, however, despite the media’s constant mewling about impending disaster the markets have more than recovered in almost every measurable way since then. As certain economic factors – like employment, inflation, manufacturing and other indicators – return to levels deemed “acceptable”, the Bank of England’s Monetary Policy Committee can opt to raise rates from their current historic lows, for reasons I won’t go into here. And they certainly will. It’s just a question of when they can.

 

Understanding the pressure on interest rates to rise affords a better understanding of what the mortgage market looks like from the banks’ perspective, and the opportunity at hand for you.

 

So now that you have a clearer picture of the mortgage market, interest rates and the pressures on each, let’s look at what can be done to improve your chances of securing the mortgage you want.

 

 

 

 

 

 

 

 

 

 

 

 

What You Need To Do Before You Apply

 

There’s a premise known as the “Cockroach Theory.” It asserts (certainly to anyone who has lived in an apartment in Manhattan!) that “Where’s there’s one cockroach that you can see, there are likely hundreds close by that you can’t.”

 

Nowhere is this theory more relevant than in the banking sector.

 

When you’re first thinking about applying for your mortgage, it’s those things that seem either trivial, or about which you are unaware of (like late or unpaid bills – whether they’re actually yours or noted on your credit report in error), that can raise red flags during your application and lead to unnecessary scrutiny and even a higher borrowing rate.

 

So here’s your “MUST DO” checklist before you apply for a mortgage:

 

Your Credit Report – Lenders will always look at your credit history to judge the strength of your financial situation. In the UK there are three main credit reference agencies – Experian, Equifax and Call Credit. Each can hold slightly different information about you, and sometimes there are errors. What you do not want to discover after you’ve applied is a mistake or other outstanding issue that then needs to be resolved during the application process. By then the damage could be done. Each of these agencies have methods for requesting changes to your credit report. They are reasonably helpful but the process can take time.

 

What You Should Do – Getting hold of your credit report from each of these agencies is easy enough online, but can get quite expensive. The only whole-of-market credit reference company that I’ve found is called Check My File – which is recommended by Money Saving Expert as well. It costs only about half the price of a monthly subscription to any one of the above credit reference agencies, and it gives you information from across all of them. Don’t waste your time and money on multiple purchases of credit reports from different agencies. The other routes include writing to get your reports sent in the post from all three agencies (which I believe costs £2 per go) and a company called Clear Score, which is gaining a lot of momentum for its free-to-use service, but it only considers Experian (and not the other credit reference agencies). Check My File is the cheapest and most convenient route!

 

Your Debts – In simplest terms, the less you have going out the more a lender will see you can afford. Now, there is no problem with paying off debts in the run up to your mortgage application. In fact, lenders may see this as proof of your improving financial strength in that you are able to do so, as well as through what they may assess as increased money available to you without those additional financial outgoings.

 

What You Should Do – Be realistic. Count up everything you have going out and look at that number relative to your income (what you pay yourself, not what’s coming into your business account). Is there room for adjustments? Can you either pay down debt if you don’t see a lot of flexibility, or increase your wages? If so, in either instance get this process going for a few months before you apply. Track record and steady guaranteed income is everything. The banks want to see consistency.

 

Your Children – There has been increased focus on the costs of children and associated childcare following the introduction of the Mortgage Market Review (MMR). Dependent children are factored in heavily as a percentage of likely outgoings required to support them.

 

What You Should Do – Be sure that you have your numbers tight on what any childcare costs are and, if possible, the inclusion of relatives or others who live close by or provide regular support to reduce this figure in the banks’ calculations.

 

Your Social Habits – Did you know that in the Far East they have credit profiles based on social media activity? It’s true. While it’s unlikely that your Facebook profile will come up in conversation at a mortgage interview, your social spending habits likely will. Lenders now want to know in some detail about how much you spend on holidays, weekly/monthly entertainment (movies, clubs, gyms, eating out), social events, donations, the golf club membership and the like.

 

What You Should Do – Make sure you are clear on those numbers and that your personal account matches your lifestyle expenditures.

 

Job & Income Stability – While paying off debts in the run up to a mortgage application is fine, as is an increase in your monthly wages, contract value and/or regular dividends, drastic changes in your financial circumstances to the downside do not bode.

 

What You Should Do – Get your income stable or growing and don’t change jobs in the run up to an application – unless it’s for a long-term contract of 12 months or more.

 

Electoral Roll – Banks and building societies will use this to verify your identity, so make sure you are listed before starting the mortgage process and avoid problems later on. This can be done quickly and easily by contacting your local council.

 

Get these sorted. Successful mortgage applications by contractors are about preparation, and then some perspiration.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Documentation You’ll Need

 

Below is your required documents list. Even if you don’t end up needing these initially, some of these may be required after the initial application phase:

 

  • Passport(s), and any accompanying Residency Permit / Residency Card you may have if you were not born in the UK.

 

  • The last 3 years accounts for your business, along with the company’s certificate of incorporation, shareholding information and related company documents (Ts & Cs).

 

  • The last 3 months of bank statements for the account(s) that your income is paid into, and from which your current mortgage/rent is paid from.

 

  • The details of any personal loans, credit cards and other balances that are not paid off monthly.

 

  • Your latest annual mortgage statement or highlighted rental payments on your bank statements – make it easy for them to find everything. Poor assumptions kill good applications.

 

  • The last 3 months payslips for all applicants.

 

  • An SA 302 Form (if applicable). It’s a form submitted to HMRC by your accountant on your behalf and shows the actual submission of all income you receive, less any personal allowances. In other words, the actual amount of income you pay tax on. It’s very commonly used by lenders since the April 2014 change (noted above).

 

  • Lenders will also require the HMRC Tax Overview form, but your accountant should know what this is and what to ask for.

 

So, what if you don’t have some of these things, or if you don’t have an accountant and some of this sounds like complete gibberish?

 

Well, if you don’t have an accountant (or need a new one) and want to cost-effectively remove the stress of accounting and bookkeeping, I’d recommend Crunch. The company specialises in freelancers, contractors, start-ups and just about any other type of small business. The £50 or £60 per month they might charge you will seem like a weight has been lifted from round your neck when it comes to SA 302 forms, mortgage applications and other financial issues.

 

 

 

 

 

 

 

 

 

 

 

 

The Lenders Who Won’t Be Able To Help You, And Why

 

So now comes the £million question: Who are the freelance- and contractor-friendly lenders out there (in the UK) and how do you approach them?

 

First, there’s no shortage of mortgage websites claiming to specialise in “Contractor / Self-employed / Freelancer Mortgages.” Google something like “Mortgages for self-employed” and most of what you’ll see coming up one page one is stuff from clever search engine optimised (SEO) sites that rank highest in online searches.

 

Sadly, it’s mostly guff. I know this from experience. But it’s important to know the following in order to avoid that trap.

 

What happens is two-fold:

 

1) You apply to a few of these sites and your credit report starts to get a bunch of new searches listed on it, which doesn’t look good when you eventually apply for a real mortgage through a real accredited lender or broker, and

 

2) Many of these sites are there to generate leads or act as affiliates just to steer you towards whoever they’re promoting, regardless of whether that lender specialises in working with contractors or not. They get a commission and your credit report inherits a small red flag for multiple searches.

 

What you’re looking for is that lender or specialist mortgage broker that the FCA has authorised and who knows how to look after your specific type of application when you apply.

 

Now, you may or may not know by now that some High Street lenders can be problematic when you’re a freelancer, contractor or self-employed and applying for a mortgage.

 

And if you apply to them and they’re not the right type of lender, those failed efforts make it harder for a specialist to broker to help you get a mortgage, or a lender that you approach directly to approve you.

 

So let’s start with the folks who likely can’t help you in order to save time.

 

John Yerou of Freelancer Financials who is a credible resource in this market writes:

 

“To help you avoid falling for these duff sites, here’s a list of lenders I’ve seen advertised who won’t be able to help you as a contractor. Let me quantify that: they won’t help you get a mortgage based on your contract, the method most beneficial to contractors: Accord; Barclays; Chelsea; Coventry; HSBC; NatWest; RBS; Santander; Skipton; and Woolwich.

 

“The above lenders will demand to see a minimum of two years accounts. They will then only assess your affordability based on a multiple of your salary and dividend drawings. As a tax-savvy contractor, you keep your salary and drawings low on purpose. Using these figures is not the way to get a mortgage that optimises your contract earnings!

 

“Work only with genuine mortgage brokers who specialise in contractor mortgages.”

The Lenders Who Will Be Able To Help You, And How

 

So, what you’re looking for is either:

 

  • a broker who will present you in a positive way to a lender who specializes in the self-employed marketplace, and/or
  • a lender who will assess your mortgage application on the basis of your “contract rate”, rather than insisting on full-time employment status and other debilitating parameters.

 

I mentioned before that many high street lenders reject applications from contractors, and that’s mainly because they are not technologically set up to deal with them, nor is their staff trained in what to look for. This makes 3 years of accounts with these lenders mandatory, and without it you’ll be declined.

 

There are brokers out there who will package your application correctly, and will do so for lenders who frequently work with the self-employed, contractors and freelancers. As with my previous recommendation about accounting assistance, I would recommend Crunch for mortgages as well. They’re a fairly unique company in that they’ve effectively built themselves as a reliable bolt-on service for those in the UK involved with start-ups, and the self-employed. Contact them first!

 

You might think of these folks like adding an extra layer of security and minimising risk in the mortgage application process. You certainly don’t have to go through them, but you might have a better chance of success if you do.

 

Now, if you’re looking to apply directly, who are the lenders you want to approach first?

 

We’ve listed them below (accurate at the time of writing). And each one shares the common and crucial approach of being willing to look at your borrowing capacity in terms of your contract rate and applying a multiple (2x, 3x, 4x etc.) from there forward (from Freelancer Financials):

 

ALDERMORE BANK

 

The under-the-radar lender for mortgage applicants in the self-employed space and/or who run their own business.

 

They accept 2 years’ accounts prepared by a suitably qualified accountant or your last 2 years’ SA302 and accompanying Tax Overview documents obtained from HMRC.

 

Unlike high street lenders they will usually use the latest years’ figures rather than an average of the last 2 years when making their assessment, if your net profit is level or rising. That’s great news for newer businesses or if you had a particularly good year last year trading.

 

The following is considered for income purposes:

 

  • Sole trader: annual net profit
  • Partner: annual share of net profit
  • Director: annual salary and dividends

 

 

 

HALIFAX

 

The first of the contractor-friendly lenders for self-employed professionals who rolled out mortgages to non-IT contractors a few years ago. Here’s what you’ll need:

  • the gross value of your current contract as evidence of income
  • they doesn’t ask for any minimum daily rate for IT contractors
  • non-IT contractors must earn at least £312.50 per day
  • contractors on their first contract must have history in the same profession for at least 2 years
  • at the time of application, the borrower must have at least 4-6 weeks left to run on their contract. If not, they must provide evidence of a contract renewal/extension
  • an up-to-date CV is mandatory, outlining your employment and contracting history
  • Halifax underwriters don’t like to see more than a 6-week gap between contracts, and
  • gross annual income (for lending purposes) calculated as a Daily Rate x 5 (days) x 48 (weeks).

CLYDESDALE

 

Like the Halifax, Clydesdale joined the self-employed mortgages market a few years ago. These are the Clydesdale’s requirements:

 

  • they accept applications from contractors on an “open” sector approach, with a minimum calculated income of £75k pa
  • expect the applicant to have had their contract renewed at least once
  • calculate income by taking the average weekly rate from the current/previous 2 years’ contract × 46; calculate income pro-rata for any contracts of less than 35 hours per week
  • do not accept offshore income structures
  • consider contractors with less than two years contract history, providing the LTV doesn’t exceed 70%
  • require the current and previous contracts; in addition, the latest 3 months’ bank statements should be evidenced
  • expect a CV demonstrating at least 2 years contracting experience in the sector, with no more than breaks of 6 weeks between contracts dates; said CV must also include income details covering at least 2 years
  • expect a minimum of 4-6 weeks remaining on the borrower’s current contract; if less time remains, they must provide evidence of a contract renewal/extension, and
  • calculate annualised income as: Daily £ Rate x 5 (days) x 46 (weeks).

 

KENSINGTON

 

This might be the best stop for many self-employed professionals looking for a mortgage, particularly if the above options thus far seem less than accommodating. It’s also the newest lender into the market and:

 

  • looks for a minimum of 12 months contracting history
  • calculates earnings over 46 weeks, annualised income calculated at ((daily £ rate x 5) x 46)
  • doesnot like to see more than 6-weeks gap between contracts unless there is a good reason, and
  • will consider a less than perfect credit history!

 

VIRGIN MONEY

 

If you’re a contractor operating through an umbrella company this may be the mortgage lender for you. Depending on the length of your current contract, Virgin Money is looking for:

 

Mortgage Criteria for a 12-Month Contract

  • your current contract must have at least 6 months remaining to run; failing that, you need to supply evidence of new/renewed 12 month contract
  • you must provide your previous contract, which must show a term of 12 months
  • your CV must prove continuous employment on this basis; i.e., no more than a 2 month gap between contracts, and
  • Virgin calculates your annualised income for lending purposes thus: ((Daily £ Rate x 5) x 46).

 

Mortgage Criteria for a 6-Month Contract

  • your current contract must have at least 3 months remaining to run; failing that, you need to supply evidence of new/renewed 6 month contract
  • you must supply evidence of 24 months continuous employment on this basis; i.e., no more than a 2 month gap between contracts, and
  • Virgin calculates your annualised income for lending purposes thus: ((Daily £ Rate x 5) x 46).

 

SAFFRON BUILDING SOCIETY

 

While some lenders in this space prefer IT contractors, Saffron takes a more inclusive approach and welcomes contractors from all niches and pay grades. Saffron is looking for:

 

  • a minimum six-month term left to run on your contract
  • proof of contract history of six months at 80% LTV, rising to 2 years at 90% LTV
  • your annualised income for lending purposes as ((Daily £ Rate x 5) x 48)
  • no adverse credit scores
  • repayment mortgages only
  • a minimum age for acceptance of 25
  • proof of income documentation as your current and previous contract
  • your last six months’ invoices
  • your six months’ bank statements, showing invoice credits, and
  • your up-to-date CV, outlining previous employment history.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Five Step Formula For Getting A Mortgage When You’re Self-Employed

 

Now that you know the following:

 

  • what the self-employed mortgage market looks like
  • how it operates and why it’s important to be aware of it
  • the recent changes in lending policy
  • the importance of applying sooner rather than later
  • what to do before you apply
  • the tools and information you’ll need to apply, and
  • the lenders who can help you and those who can’t…

 

It’s time to put this into an easy to follow 5 step programme to help you secure the mortgage you’re looking for:

 

Step 1 – Assess Yourself

 

You need to check your credit report with a credit reference agency in order to be able to see what a lender will see, how that might impact your application in terms of rate offered and/or any issues that may need to be addressed, and avoid wasted effort and negatively impacting your opportunity to secure a mortgage. Don’t assume. Assumptions have no place in heavily legislated environments like financial services.

 

You now know the three main credit reference agencies as Experian, Equifax and CallCredit. Experian is the credit reference agency most commonly used by UK mortgage lenders.

 

I’m a big fan of Check My File because it’s a whole lot easier to use them and get access to all of the agency reports, and at half the price of using even one of the credit reference agencies directly.

 

Step 2 – Assemble Your Documents

 

We’ve provided some complete lists in this report about the types of documentation you’ll need to secure a mortgage, along with specifics for each freelancer-friendly mortgage provider.

 

If you don’t have these documents, now is the time to get them. If you don’t have accounts in place – one of the primary sets of documentation looked at by a lender – we’ve recommended Crunch to help you. Like the lenders, they’re set up specifically for contractors and the self-employed.

 

Step 3 – Consider A Broker

 

Are you going to apply on your own or are you going to use an FCA regulated broker to help you? This is usually a decision that comes down to the time you have available to go through the process and your level of confidence / experience in working with lenders in the past.

 

I recommend using a broker because, like any coach, they’ll know better than you and will be more fluent with the financial changes that have happened since April 2014. They’ll also likely know how best to work through them and present your case. I am a big fan of Crunch because they know the market and will tell you like it is.

 

Step 4 – Identify Your Lender(s)

 

The reason we’ve provided a list of “Go-To Lenders” and “Banks to Avoid” is to try and save you time and any unnecessary wasted efforts, and the impacts of those on your credit. Cards on the table, we have no personal bias for or against any of these lenders, some simply work with self-employed applicants and some just aren’t set up to.

 

You’ll know from the preceding information where you fit in terms of creditworthiness, your contractual/self-employed status, and what your accounts and other documentation look like. This will hopefully point you towards one of the lenders we’ve identified above.

 

Step 5 – Be Patient

 

This means two things:

 

  • You may come to realise quite quickly that this is not the right time to apply for a mortgage because you’ve identified one or more things that need to be sorted out first, or
  • Because of the changes in legislation, and the new mortgage screening procedures in place, more often than not things don’t move as quickly through the application-to-mortgage-offer stage as they did several years ago.

 

Just remember: There are a lot of options out there just now and a once-in-a-lifetime low interest rate environment for the savvy folks who want to take advantage of cheaper mortgage options while they’re still available.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

What Happens Next?

 

I hope this information is more than just helpful to you, I want it to become the foundation upon which you dramatically improve your chances of getting your first or next mortgage or re-mortgage.

 

What I’m going to do from here forward is stay in touch with you through regular and brief follow-up emails. No spam! Just some tips, updates and good advice as it arrives.

 

Here’s a note of a few of the market-unique companies we’ve found and recommend to help you in your self-employed mortgage journey:

 

 

 

Crunch Accounts

 

For self-employed / freelancer / director and small business company accounts

 

Check My File

 

The only whole-of-market credit checking facility at half the price

 

Aldermore Bank

 

The under-the-radar lender that specialises in self-employed mortgages

 

Crunch Mortgages

 

Specialising in self-employed mortgage and helping you through the process

 

Endsleigh Household Insurance & Co-op Home Insurance

 

The two recommended insurance providers that I have experience with

 

 

 

Good luck to you all.

 

And please feel free to drop me an email and let me know how you get on!

 

 

Ed Emerson

Managing Director

HNW Magazine Ltd.

editorial@hnwmagazine.co.uk

 

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