So you’ve finally quit your 9-5, congratulations! Look forward the freedom and opportunities self-employment brings and enjoy controlling where your career goes. However, with all the advantages of self-employment, there are also some disadvantages you cannot ignore. When it comes to taking out loans and getting a mortgage, self employed individuals struggle. A self employed mortgage broker can help you achieve the home ownership dream.
Problems Self Employed People Face When Securing a Mortgage
The economic crisis of 2008 and impending Brexit mean lenders aren’t willing to take chances on individuals. They want to know that if they give a mortgage to someone, they’ll meet their repayment schedule. Unfortunately, owning your own business means you can’t offer the guarantees lenders look for.
Before the economic crisis, self-employed people could get a mortgage with little hassle. Self-Certification mortgages enabled freelancers and business owners to obtain a mortgage without having to prove their income. Instead of showing bank statements and invoices, people declared their yearly earnings and were fast-tracked to a mortgage.
While this seems brilliant, there were problems with self-cert mortgages that contributed to the economic crisis. You may have heard of self-cert mortgages being referred to as “Liar Loans.” People took advantage of the system and often lied about their income for a bigger mortgage. The government banned self-certification mortgages and as a result, have stricter guidelines for business owners or freelancers.
Self Employed Mortgage Eligibility
It seems the outlook is bleak, but you can get a self-employed mortgage. Yes, there are more obstacles, but as long as you fulfil the criteria, most mortgage providers will lend you money.
While some mortgage providers differ, most expect you to meet the following requirements:
- Prove your identity: Mortgage providers accept photographic evidence, such as driving licenses or passports.
- Prove your address: As long as you have a utility bill or official document with your name and address listed, this will be fine.
- Provide personal tax returns: Most providers expect self-employed individuals to produce at least three years of tax returns.
- Supply bank statements: You must provide bank statements to verify you’re financially stable.
- Show proof of your deposit: If you want to buy a home you’ll need a large deposit. A statement showing the funds or a letter if the deposit is a gift from family are both accepted as proof.
If you can provide all of this information, then you’re more likely to get a mortgage. However, some providers will offer a mortgage if you don’t meet all the criteria. Mortgage brokers know where to go and talk to lenders on your behalf. The services of a broker can help you achieve your home ownership dream.
How Do Mortgage Brokers Help?
Mortgage Brokers act on your behalf when dealing with lenders. They can help you find the best mortgage provider to suit your circumstances and handle all aspects of the communication. If you want to find a suitable mortgage, then a reputable broker will save you time and money.
Not only do mortgage brokers communicate on your behalf, but they also handle most of the application process including:
- Gather documents including identification and tax returns
- Pull your credit history for checks
- Verify your income
- Oversee the application process
One of the best things about mortgage brokers is their list of contacts. They’ll have a list of lenders willing to work with self-employed people. Brokers can find the best deals around and often apply to multiple lenders at once on your behalf.
Payment Options & Broker Fees
Many buyers don’t want to work with a mortgage broker, because of their fees. However, plenty of reputable brokers offer a cost-effective service. On average, mortgage brokers charge £500, but they operate in different ways which can add to your costs.
Fixed Rate – Brokers will agree on a fixed fee before they arrange the mortgage. Always reach an agreement and get it in writing.
Percentage – In some cases, brokers prefer to take a percentage of your mortgage amount. For example, if you get a mortgage of £120,000, the broker will receive £1200 in fees.
Hourly Rate – In rare cases, brokers charge by the hour. Always get an estimate of how long the application process will take.
In most cases, using a mortgage broker, particularly if you’re self-employed is the most effective solution to obtaining a mortgage. Hours of work and expertise go into securing a self-employed mortgage and your broker will know the best avenues to take, depending on your situation.
Some brokers advertise themselves as free, but this option has some drawbacks if you’re looking for a mortgage. Commission based brokers receive payment from lenders once they match them with a customer. No charge seems like a fantastic option, but are you guaranteed the best mortgage for your circumstances?
If brokers are paid by lenders, then they might not have your best interests at heart – always ensure that they are independent. Talk to the broker and ask what lenders they work with before you sign anything.
Finding a Mortgage Broker
Search online and you’ll see an abundance of mortgage brokers, but how many are reputable? You can ask friends and family for recommendations, read reviews on websites or speak to estate agents, but if you don’t have those options, it’s easy to become overwhelmed.
To ensure you find the best deal, ask brokers these questions:
Are You Independent?
If a broker doesn’t work independently, they might not have access to specific lenders. You want to find the best self-employed mortgage, so try to find an independent broker who can evaluate a wide range of lenders.
What Are Your Fees?
As we mentioned, mortgage brokers accept a variety of payment methods. Think about what you can afford and choose a broker with the payment option you feel most comfortable with.
Are You Qualified?
Never choose a mortgage broker that isn’t on the Financial Services Register. Not only does their membership prove they’re qualified to handle your mortgage, but you’ll also know they’re reputable. At Mortgage Arrangers, we have access to a wide range of experiences mortgage brokers who have expertise in your particular requirements. As we’re an introducer and don’t provide advice directly, you won’t find us on the register. Once you’ve submitted an enquiry to us, you be able to check the broker who has been assigned to you on the register. You’ll be able to do this after your initial contact with us.
Getting Your Mortgage
Now you’ve seen how a mortgage broker can help you, go and get that mortgage! Home ownership gives you the freedom to decorate your home and avoid those inconvenient property inspections from letting agencies. Self-employed mortgage applications aren’t easy, but with the right mortgage broker on your side, you could pick up the keys to your new home very soon.
What are the next steps?
Depending on which stage you’re at, you may wish to use our mortgage calculator. We’ll ask you a few quick fire questions to find out more about your situation. We’ll then pass this information straight to whichever specialist in our network can assist you best.
If you’re not sure yet which mortgage is most suitable, check out our different types of mortgage guide.