A self-employed person is someone who runs their own business
and works for themselves without an employer. Directors
of small limited companies, although technically employed
on a PAYE basis, will generally be classed as self employed
when it comes to applying for a mortgage or remortgage.
If you are self-employed, work on a contract basis, or
have an income that is irregular or comes from multiple
sources, it will generally be harder for you to get a mortgage
than it is for someone who is an employee and can easily
prove their income.
With over three million self-employed individuals in the
UK, the attitude of many mortgage lenders towards the self-employed
population is a problem that can affect a large number of
people, even though many self-employed people often earn
more than a lot of salaried workers.
The problem stems from the fact that the majority of mainstream
mortgage lenders require proof of income when assessing
a mortgage or remortgage application. Employed people can
use their payslips and P60 as proof of salary, but there
is no such straightforward equivalent if you are self-employed.
In place of payslips, self-employed workers may be asked
to provide audited accounts that show their income over
the last three years. However, in many cases, these accounts
will not give an accurate reflection of how much money a
self-employed person is making. This is because if the accountant
who prepared the accounts is doing his job properly, he
will have offset as many allowable expenses as possible
against tax. This has the effect of reducing the self-employed
person's net profit, upon which the lender will base the
size of mortgage or remortgage they are prepared to offer.
The situation is even worse for the newly self-employed,
as they may not yet have been trading long enough to have
had three years' worth of accounts prepared.
This is where mortgage lenders who specialise in self-certification
mortgages and self-employed mortgages come into their own.
These types of lenders appreciate the different and complex
working patterns of the self-employed, contract workers,
and people whose jobs are seasonal. They are prepared to
look at each case individually and assess each mortgage
application on its own merits, rather than just applying
a series of one-size-fits-all income tests. In many cases,
self-certification means that you do not need to supply
any proof
of income - you just declare what your income is without
having to provide any supporting documentation.
In addition, specialist self-employed and self-certification
lenders are more likely to offer flexible mortgage products
that allow overpayments and underpayments. This is ideal
for people whose income can fluctuate throughout the year,
as it means you can overpay when times are good and underpay
if you're business is going through a quiet period.
About the Author
David Miles edits a number of finance websites, including
TheCashClinic.com
- a UK Personal Finance Portal.
