Personal Finance

What is a self-employed mortgage?

Self-employed mortgages, as the term implies are mortgages designed for those that are self-employed. Traditionally it’s been more difficult for the self-employed to get mortgages.

Mortgage lenders preferred to see the regular income guaranteed by employment. However this has changed in recent years. There are now mortgage lenders who specialise in the self-employed market.

If you are self-employed or unable to prove your income, it can be difficult finding a suitable mortgage. There are a number of reasons why it is often more difficult for those in such situations, the main ones are that the income of the person tends to fluctuate, and they are unable to prove their income like those regularly employed who can produce payslips.

Self-employed people may experience a problem finding a mortgage. Those in standard full-time employment are basically guaranteed to be paid, and can get references from their employer as well as be able to show their payslips therefore proving their income. Mortgage lenders like this as it cuts down their risks.

If you are self-employed or working on a short-term contract, you could be financially solvent, and able to keep up payments easily, but that doesn’t make it easy for you to prove that you will keep up payments to your mortgage lender. They want to know that that you will be able to keep up payments for a full term, usually 25 years, not just over the next year.

If you have no proof of income because you are self-employed and do not have three years worth of accounts it is unlikely that any high street mortgage lender will offer you a mortgage.

Being self-employed , and not having a regular or provable income needn’t prevent you from getting the mortgage that you need, there are specialist lenders in the market who offer mortgages for these circumstances.

There are lenders that will offer you a mortgage on basis that you self certify your income, nevertheless, you’d still need to have a sizeable deposit to put down to lessen the lenders risk. For this deposit of 15-20% the lenders do not check employment records or ask for your accountant to clarify your earnings.

Mortgage lenders will want to see three years audited accounts from a certified accountant before they consider a mortgage for the self-employed. If you do not have three years accounts you may be able to get a self-certification mortgage by declaring your income. You have to provide a certificate from your accountant for your last few years’ mortgage statements.

Some specialist mortgage lenders have targeted the self-employment mortgage market by providing some solutions that offer a more flexible approach to match the working pattern of someone who is self-employed. This means that they accept that when you are self-employed you may enjoy periods of high income but you may also suffer from periods of low income. Your mortgage should reflect that, enabling you to overpay and underpay when you need.

Those with a reasonable amount of deposit but unable to show their true earnings would suit this type of mortgage.

About the author
John Mussi is the founder of Direct Online Loans who help UK homeowners find the best available loans via the website.