New Mortgage Rules Challenge Borrowers

By Ed Emerson

Since the real estate recession ended in March 2009, and the new Mortgage Market Review (MMR) rules came into place in 2014, eliminating things like self-certified (liar’s loans) mortgages, it’s become a lot more difficult to get a mortgage when you’re self-employed.

But it’s not impossible; not by a long shot. You just need to know the new rules of the self-employed mortgage game; how to apply, what to do before you start, and who to approach. And that’s what I’m going to share with you today.

Rule #1 – The Credit Sweep

Now, you can do this the smart way – the method that very few people know about. Or you can do it the expensive and time-consuming way – which is how most self-employed mortgage applicants go about it.

There are three main credit referencing agencies: Experian, Equifax and Callcredit. They can each hold different information about you and, while the Money Saving Expert site has produced a terrific chart that tells us which lenders use which credit agencies, you don’t want to take a chance here by not looking at them all.

UK Self-Employed Mortgage

The smart way to do this is to go through a little known company called Check My File, which is also endorsed by Martin at Money Saving Expert. It has a free introductory period, costs a lot less than even a single subscription to one of the three main credit referencing agencies, and is the only service that shows you your credit information from all of them.

The more expensive and time-consuming way to do this is to apply to Experian, Equifax and Callcredit individually, try the free option of Clear Score without realising that it only considers information from Equifax, or order copies of each through snail mail for a few pounds and wait for them to eventually arrive.

Rule #2 – The Paper Chase

Those who specialise in the self-employed mortgage market will look for certain documentation, including:

  • Passport(s), and any accompanying Residency Permit / Residency Card you may have if you were not born in the UK.
  • The last 1-3 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.

Rule #3 – The UK’s Self-Employed Mortgage Lenders

Don’t make the mistake of focusing only on chasing the best possible interest rates on the market, because you’re probably wasting your time.

Now that might sound like an odd thing to say, but hear me out.

Right now we are extremely fortunate that the UK has the lowest base rate in history at 0.25%. That means access to incredibly cheap borrowing options across all lenders.

However, those uber-cheap fixed interest mortgage options mean absolutely nothing if the lender you approach has no idea how to assess your application. In other words, most banks are set up to process applications from those who fit into the PAYE classification as an employee.

If you have a significant shareholding in your business and are a company director listed on the Articles of Association, you are immediately outside that PAYE safety net.

The fact is that there are very few lenders in the UK who are set up to process self-employed mortgage applications. And this is one of the most important things you need to know about the new rules of the self-employed mortgage application game: Your lender audience is very limited. Don’t complain about it, deal with it.

HNW Magazine has undertaken some significant research in this area and we have identified those lenders who actually do specialise in the self-employed mortgage market. They include:  

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

Halifax – The first of the contractor-friendly lenders for self-employed professionals who rolled out mortgages to non-IT contractors a few years ago.

Clydesdale – Like the Halifax, Clydesdale joined the self-employed mortgages market a few years ago.

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.

Virgin Money – If you’re a contractor operating through an umbrella company this may be the mortgage lender for you.

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.

Consider these lenders as your first port of call.

And if you’d like to find out more about fine tuning your earnings by adjusting your tax and dividend payments in the run up to your application, or who you can turn to for specialist help with accountancy and broker related issues that have specialist experience in the self-employed mortgage market, see HNW Magazine’s article So, How Do I Get A Mortgage When I’m Self-Employed, Anyway?

The new rules of the new self-employed mortgage game:

Rule #1 – Sweep your credit the smart and inexpensive way by checking all three credit reference agencies through one source – Check My File.

Rule #2 – Chase your paperwork first and ensure you’ve got the documentation in place that tells the whole story of your finances.

Rule #3 – Target the lenders who specialise in the self-employed mortgage space, instead of chasing the lowest interest rate with a lender who might not be able to work with you.

And once you’ve swept your credit, undertaken the document paper chase, and identified the lenders who you have the best shot at securing a self-employed mortgage with, you might want to have a look at our mortgage calculator here to help you reckon your monthly payments and the total amount you’ll be paying back.

Ed Emerson, Editor, HNW Magazine

Want to know more?

Now 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 Getting a Mortgage When You’re Self-Employed” for consultants, freelancers and entrepreneurs, out soon, and take advantage of the mistakes others have made so that you don’t have to.

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