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.
If you want more information on self-certification mortgages for
self-employed people, please visit Clean Slate Mortgages.
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Copyright 2004 David Miles. You are welcome to reproduce this article on your website, so long as it is published "as is" (unedited) and with the author's bio paragraph (resource box) and copyright information included. In addition, all links to external websites must be left in place.
About the Author
David Miles is the editor of various mortgage related websites including:
The Online Mortgage Calculator
Clean Slate Mortgages
and Essex Mortgages |
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