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Market research from Aldermore Bank PLC, which shows that currently 29% of British workers, almost one in three, are planning to become self-employed in the future, with more women looking to make this change than men, it also highlights just how big the self-employment sector currently is and also how much we can expect to see it grow in popularity over the coming years.
More than 50% of people who have made the move to self-employed are now earning more money than in their previous employed role and one in three expect this to increase in the next 12 months. However, when it comes to mortgage lending, self-employed people can sometimes find it difficult to secure the level of mortgage that they require, but this need not be the case.
Below, we take a look at how lending criteria has changed and give advice on how to secure a mortgage if you are self-employed.
The Mortgage Market Review (MMR) which was launched on 26th April 2014, whereby the Financial Conduct Authority (FCA) required lenders to place more emphasis on a client’s overall outgoings and the affordability of their monthly mortgage payments.
Self-certification mortgages have also been removed from the mortgage market, meaning lenders were no longer willing to just accept the borrower’s word on their income levels and resulted in many lenders refusing to offer a loan if they felt that the client had not been trading for long enough, irrespective of previous experience and/or employment within the same industry prior to switching to self-employed status.
The FSA’s thinking is certainly reflected in the perception of the general public.
40% of those in self-employment believe that their ability to borrow is restricted due to their status.
If you’re self-employed, in most instances you will be asked to present 3 years’ worth of audited accounts or Tax Calculations and Tax Year Overviews.
The Tax Calculations and Tax Year Overviews are downloadable documents available via the HMRC website. The Tax Calculation is now the preferred name for the SA302.
The Tax Calculation shows your income for the year, your personal allowance and the resultant tax bill on the year. Whilst the Tax Year Overview is a statement of your tax bill for the tax year, the tax paid and any amount outstanding.
In the case of a contract worker, many lenders will require 2 years history of contracting, along with at least 6 months remaining on your current contract. Without these, your mortgage application could be denied so it is imperative that you have your documentation in order as it could not only cause delays in the house purchase or re-mortgage process, but more importantly it could adversely affect your ability to borrow from another lender – failed mortgage applications can have a negative effect on credit file and credit scoring.
When you apply for a mortgage, you will be asked to go through a mortgage interview. You will need to have all your income figures ready in advance of your meeting.
The audited accounts, Tax Year Overviews and Tax Calculations will provide confirmation of such figures as your company profit, tax paid and other areas that lenders will base their lending decision on. In addition you may be asked to provide copies of contracts or formal offers as evidence of stability of your future income.
There is no substitute for the support of a professional mortgage adviser. Curchods Mortgage Services can explain everything to you, prepare and submit your mortgage application and research the whole of the mortgage market in order to find the right deal for you and your particular financial circumstances.
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