By Ed Emerson
The more things change, the more they stay the same in the wonderful world of finance, as many UK lenders have chosen to reverse direction on Bank of England (BoE) Governor Mark Carney’s recent interest rate reduction and screw over first time buyers and self-employed mortgage seekers, en masse.
High street lenders, including the Halifax – one of the few banks that HNW Magazine shortlists as specialising in the self-employed mortgage space – Tesco and Nationwide have increased the cost of a range of their popular index tracker mortgages, making them more expensive now for first time borrowers.
But Deposit Account Rates Are Fallling
However, the banks certainly didn’t forget to cut interest rates on their deposit accounts in order to pay out less to savers. Santander led the way on that move by dropping its 123 account down from 3% to to 1.5%.
The Halifax, Britain’s biggest lender and the first bank to move into the self-employed mortgage lending space a few years ago, increased the interest rate on its 2 year tracker for first-time buyers with a 15% to 20%c deposit, and up from 1.59%c to 2.04%. This adds £86 a month to the cost of a 25-year £400,000 mortgage.
And while a Lloyds Banking Group spokesman said Halifax had minimized the impact on customers by increasing cashback by £500 (according to the Telegraph’s Katie Morley), it doesn’t take a mathematical genius to work out that additional monthly cost will quickly eat up the cashback amount and work heavily in the bank’s favour.
Self-Employed Mortgage Seekers Can’t Chase Interest Rates
Unfortunately, when you’re self-employed and looking for a mortgage there are different rules that apply. Traditional employees paid through PAYE simply have more options than those who aren’t, and you can’t undertake a search for a lender with only the lowest fixed rate offer in mind.
The reason for this is that only about half a dozen lenders in the UK are set up to work with self-employed mortgage applicants. We have researched and prepared a list of those lenders here, along with a number or articles about how to apply, and a forthcoming report showing the steps you need to take to get a mortgage.
The ‘New’ Self-Employed Mortgage Lenders
Identify the lenders who work in the self-employed mortgages space first. They are set up internally to understand income pictures that would, in another lender’s underwriting department, be considered complex or inconsistent.
The first lender into this space was Halifax, followed by Cydesdale and then in no particular order; Kensington, Virgin, Aldermore and Saffron. These are the six lenders in the UK who you should focus all of your efforts on when applying for a mortgage or re-mortgage as a self-employed applicant from here forward.
The Smart Way to Check Your Credit & Accounts
One of the most common problems to arise when anyone applies for a mortgage without first checking their credit, is an unexpected glitch on the reports of one or more of the UK’s main credit referencing agencies: Experian, Equifax and Callcredit.
Individually, it costs between £12 and £15 per month to subscribe to a credit referencing agency after the initial free trial period. And you’ll likely need to subscribe for longer if there are errors or things that need to be fixed on your report.
Check All Your Credit Files with Check My File
But there is a way to do this that’s far less expensive and offers a single resource where you can check all three at once. It’s called Check My File; a company endorsed by Money Saving Expert and which, to my knowledge, is the only agency of its kind that gives you comprehensive access to all three of the main credit referencing agency reports.
Then Crunch Your Accounts
Additionally, one of the most oft-referenced and well-regarded accountancy and mortgage brokering services in the UK’s self-employed mortgage space is called Crunch. The organisation was essentially set up with the specific purpose of helping people to secure mortgages while self-employed, contracting or freelancing. This link here will take you to the accountancy-related section, but just click on the “Other Services” button for mortgage assistance.
Get Your Documentation Together
Also, 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.
Consider Adjusting Your Wages Up & Dividends Down
There’s one other absolutely crucial part of this: Consider if it might be necessary to adjust how and what you pay yourself in the short term.
Now, I know that the most tax-friendly strategy is to pay yourself to the maximum level before your base income becomes taxable, and then top up your income with dividends as and when appropriate.
It’s the most common way to go about things when you’re self-employed.
But sometimes, if you haven’t been in business, or contracting or freelancing for that long a period of time, or your personal expenditures are such that you’ve kept your income very very low, you may want to adjust the wages element upwards at least three months in advance of making your application.
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 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.