The self-employed have always faced significant hurdles when it comes to obtaining a mortgage. With the introduction of new rules for mortgage applications under the MMR, it seems that sentiment among self-employed people looking for mortgages is currently running at its lowest ebb. Stories of 3 hour grillings from bank staff who pick over every aspect of one’s financial life have been making headlines everywhere.
But we don’t think this negative outlook on the part of self-employed homebuyers is quite justified.
In fact, as long as you prepare adequately for the mortgage application process, there shouldn’t be any reason you can’t obtain a mortgage just as easily and quickly as an employed person with identical salary, outgoings, credit history etc.
In order to allay the worst fears of self-starters everywhere we’ve put together the following checklist for self-employed mortgage applicants.
1. Get your SA302 form as early as possible
We’ve written about the SA302 form before. This is the one page tax calculation document you get from HMRC after you’ve submitted your tax return each year.
Many lenders are now requesting this HMRC document as a proof of income for self-employed people – and some are asking SA302’s going back as far as three years.
If you’re a conscientious record keeper you’ll probably already have these handy. But if you haven’t been that organised you might have to order a paper copy from HMRC and that can take weeks to arrive. If you haven’t got yours yet, better order it now.
1. Do your sums
The Mortgage Market Review rules require all borrowers to have taken some kind of formal advice – which means interviews with lenders or brokers where your financial activities are unpicked to assess what kind of mortgage you can afford.
If you don’t want to waste hours going through the same interviews, repeating the same information over and over ad nauseum you need to prepare for this process by doing as much of the work up front as possible. If nothing else, this will at least reassure you that you can afford the particular mortgage you’re eyeing up.
This is no time for back of the envelope scribbling – this kind of financial planning calls for a spreadsheet.
2. Stress test yourself
Don’t just base all your calculations on the here and now. The drum beat for interest rate rises at the Bank of England grows louder by the day and most of the indicators point to a gradual increase in rates which takes place over a number of years.
Which means you could be facing higher base rates when you come to the end of any fixed rate period.
Use a mortgage repayment calculator to model such a scenario based on your projected income and check that you’ll be able to handle the extra interest burden.
3. Gather your documents
Lenders will want to see proof not only of your recent income but might also want to see evidence of your future income, so be prepared to present formal offers or signed contracts for future work. And remember your SA302!
4. Survey your outgoings
The new guidelines require that mortgage advisers assess the affordability of a particular product based not only on your income but on your outgoings too.
While this is a much more thorough method for checking affordability than the old income multiple calculation, this financial probing can get down to quite a granular level.
Our advice then is to note down all your expenditure in great detail in advance – the better prepared you are, the quicker it’ll be over.
5. Talk to a mortgage broker
With the introduction of the new rules banks are scrabbling around to recruit sufficient mortgage advisers to handle the demand. This is what’s leading to the long waiting times for appointments with banks and the length of the application process itself.
But mortgage advisers at banks aren’t the only ones who can perform these new checks: FCA authorised mortgage brokers can do it too. So, by making use of a broker you’ll not only receive help with steps 1-5, maximising your chances of a successful application, but also cut down the amount of time it takes to apply.
To speak to a specialist mortgage broker at Springtide Capital, get in touch today.