Six secret steps to mortgage success for the self-employed
For some, obtaining a mortgage when you’re self-employed, may seem like walking up the down escalator – fruitless. We’re sharing our experience with you, to give you a smoother ride to success – your mortgage isn’t a dream, it’s a spreadsheet and SA302 form away from reality.
Why is it so tough?
It boils down to two things: the mortgage market review (MMR) which made all borrowing rules tougher (to protect you) and proving your income.
When you’re salaried, it’s easier for banks, as you represent less of a risk, with a steady income each month – if you’re self-employed, this is often not the case, with busier and quieter income periods. The banks will also be looking at how quickly people pay you, forecasted income and how much profit you make.
It’s responsible to ensure you can afford a mortgage
On a positive note, it’s good that a lender or bank ensures that you can afford the mortgage in the first place, it’s no different to an employed person in that respect – the rules are there to protect you.
We submit many successful mortgages for self-employed people, it’s all in the preparation and choosing the right lender for your circumstances, which may or may not be a mainstream bank.
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
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. You can also find out how to access it by visiting the HMRC’s website.
It’s common for lenders to request SA302 forms dating back three years in some cases. The good news is, if you submit your return online, you can usually print off what you need quickly. If you still submit via post, you may need to wait a few weeks for it to arrive after requesting it.
2. Get your income figures ready
You’ll no doubt be asked to go through a mortgage interview: a process of discussing your income and personal outgoings and talking through the details of the mortgage. Our biggest tip is to get your figures ready before the call, it will save both you and the interviewer a great deal of time, do the work before hand to make it painless.
Ensure you have your accounts to hand, with profit and tax for the last three years. You’ll also need details of any other income such as a partner freely available. The majority of lenders will require accounts and personal tax returns to be within the last 18 months, so do not delay if you are thinking of arranging a mortgage.
3. 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.
4. 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!
5. 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.
The questions can vary depending on lender, you’ll definitely need details of household bills, savings, personal expenditure, existing loans, pensions – basically any money that goes in or out of your bank account/s.
This is no time for back of the envelope scribbling – this kind of financial planning calls for a spreadsheet. 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.
6. Talk to a mortgage broker
With the introduction of the new rules, banks are scrambling around to recruit sufficient mortgage advisers to handle the demand. This has lead to long waiting times for appointments with banks and the length of the application process itself.
Fortunately, 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 on gathering the figures together, you’re also maximising your chances of a successful application and cutting down the amount of time it takes to apply.
To speak to a specialist mortgage broker at Springtide Capital, get in touch today.