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Mortgages for the self-employed: it is possible for freelancers to secure a loan — here’s how to get your finances in shape

·5-min read
<p>Success: RHJB Architects director Jonathan Butler secured a mortgage without difficulty</p> (Jonathan Butler)

Success: RHJB Architects director Jonathan Butler secured a mortgage without difficulty

(Jonathan Butler)

The self-employed have always had to jump through hoops to get a mortgage and the pandemic has undoubtedly made it tougher. But don’t despair, there are still lots of options.

In fact, with the right lender and a great broker it is doable with a small deposit and just one year’s accounts.

Here’s what you need to know.

Competitive mortgages exist, but expect greater scrutiny. The self-employed, whether as a sole trader, in a partnership or a limited company, have always needed a tip-top credit rating alongside two or more years of certified accounts and the corresponding HMRC forms to apply for a mortgage. Covid-19 has added the requirement to prove cashflows, too.

“Banks are asking for at least three months of business bank statements from now and pre-Covid to see if the business is back to operating at similar levels,” said Alex Smith, senior mortgage and insurance advisor at Capricorn Financial.

Should you tick all these boxes, have a look at Halifax. They will lend up to 4.49 times income, on up to 95 per cent of the property’s value (maximum loan £500,000) at a two-year fixed rate of 3.73 per cent with no fees.

“The last year has been a challenging time for us all,” said Jonathan Butler, director at RHJB Architects (rhjbarchitects.com). “Thankfully our practice has gone from strength to strength. This has given my fiancée and I the confidence to buy our first home together. As a director of a limited company, I was aware that securing lending can sometimes be more challenging, but this was not the case. If you are self-employed or the owner of a small business, do not be deterred, it can be done!”

Essential tips for the self-employed

Use a broker. The mortgage environment is very fluid at the moment with deals, income multiples and LTVs all changing. Covid adds a further complication as lenders differ substantially in how they approach government support. Trying to find the right deal for yourself is a nightmare but Mortgage Broker Tools found seven out of 10 applicants whose mortgage broker used their system in April got the loan size they needed from the market.

Be ready to provide proof that you are at least three months free of Covid support via your bank statements.

Ensure your credit rating is as good as it can be.

Disregard Covid with Santander

At Santander, providing you have bank statements showing at least three months of trading without Covid support, you can ignore it entirely. “To support self-employed customers whose business has been impacted by Covid, we are basing our income assessment on 2018/19 and 2019/20 accounts to get a more accurate view of long-term trading,” said Graham Sellar, head of the mortgage department at Santander.

Wiping out a whole year’s trading history does shrink Santander’s willingness to lend to 75 per cent of the property’s value. This means finding a 25 per cent deposit, a big ask after a tough year.

If you can though, the upside is an interest rate fixed for two years at 1.78 per cent without fees. For those who value certainty, the five-year fix at 1.94 per cent (without fees) looks even better value.

One year’s accounts, no problem

The coronavirus changed the way we live and prompted a 24 per cent increase in start-ups as people sought to take advantage of the online shopping boom. If your new business has soared, make it count towards your mortgage application by submitting your 2020/21 tax return early.

Habito One is open to the self-employed with at least one year of accounts and is the only UK mortgage that lets you fix your rate for the entire length of the mortgage — up to 40 years, with as little as a 10 per cent deposit. On a 25-year mortgage, this means locking in a rate of 4.64 per cent for a one-off fee of £1,995.

Will Rhind, head of mortgage advice at Habito, said: “Habito One offers complete flexibility with no exit fees, no early repayment charges and the option to take the mortgage with you if you move home.” He also told Homes & Property that a five per cent deposit product is being discussed, so watch this space.

Roll rather than sit on the Standard Variable Rate (SVR)

If your business is still recovering as your mortgage deal ends, roll on to another product from your provider. Rolling is quick and crucially, because it is with the same provider, there’s no underwriting requirement to re-examine your eligibility and affordability criteria.

Pragmatism isn’t standard, so get help

Around 500,000 Londoners claimed a grant under the Self-Employed Income Support Scheme at the start of 2021.

While this may have been a lifeline, “some banks won’t help you at all if you’ve had government support”, said Smith. There are also reported challenges for business owners who’ve accessed bounce-back loans.

Thankfully, such caution isn’t standard. But nor are lenders’ views on minimum deposit size, maximum income multiples, the years of accounts needed or even whether the self-employed can apply. Save time and stress by going straight to a whole-of-the-market broker such as Capricorn Financial or Habito.

Read More

Is now a good time to a buy a property? A guide to the new mortgage guarantee scheme and other low-deposit options

Property market overview: from house price forecasts to making offers and finding value, here’s what you need to know now

Covid pandemic house price drops: 11 London neighbourhoods with average prices below the last peak

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