READ ALL ABOUT IT

Mortgages for the self employed and other awkward types

Up to recent times and in many cases even now, the major British mortgage lending institutions such as Building Societies and High Street Banks have not looked very sympathetically at individuals who don’t fit into the approved profile of their classic borrower. They regard them as a sort of `awkward squad`.

Their ideal client is the fully employed individual with a substantial deposit working for a reputable company, whose income can be demonstrated by pay slips or tax returns and which comes from just the one source.  This straight jacket approach to lending has in the past and even today excluded many individuals who are perfectly good lending risks but who simply do not meet these criteria.

The most obvious group who fall into this area are the self- employed particularly those who have only been working for themselves for a short time, say less than three years. But other groups have been included too - such as contract workers of those for whom commissions, bonuses or other irregular payments form a large part of their income.

Company Directors who own 25% of the shares in the company they work for are also deemed to be self employed by major lending institutions.

Mortgage lenders want to be sure that the borrower can meet the monthly repayments so they need to know the applicants income. If you can’t prove your income or if it’s not guaranteed to be a fixed amount that is sufficient to meet the mortgage repayment each month then Lenders will certainly have a problem.

Lenders who are willing to consider self-employed individuals generally require a number of years audited accounts usually a minimum of three which are certified by a professionally qualified accountant... So given the time lag before annual accounts are available, a recently self-employed person may not have sufficient years `accounts to meet the Lenders requirements.

People in all these groups should still have ways to demonstrate their income. Everyone has to make an annual tax return to the Inland Revenue and these are generally accepted as evidence of income.

One other possibility for people in these situations is to opt for a self-cert mortgage. This involves an individual declaring their income and certifying to the declaration themselves with the lender accepting the statement as accurate. Often with this type of mortgage, a higher deposit will be required and interest rates may well be higher compared to the standard types of mortgage advance.

It is important to remember with self-cert mortgages that they are not an invitation to exaggerate one’s income. Mortgage applications are legal documents and it is a criminal offence to falsify them. It is also unwise to obtain a larger mortgage than one can really afford and increasingly lenders and mortgage brokers take pains to assess the affordability of the loan as they are required to do so by the regulatory authorities.

There are now many lenders who will consider the self employed and other `awkward` individuals. These are often not branch based lenders that can be found in the High Street but can usually be contacted via mortgage brokers or by searching the internet using keywords such as `self-employed mortgage`, `self-cert mortgage` or similar.

So the message for the self-employed and other members of the `awkward squad` is not to despair, but to cast around for other possible sources who may look mor helpfully at their circumstances.

< Back to index

Copyright First Union 2007