Mortgage lenders tighten loan rules for recently self-employed entrepreneurs

Newly self-employed individuals could find it harder to gain access to funding to buy a home or even to remortgage.
 
Fresh data from the Office for National Statistics (ONS) found that in the three months to the end of November 2013, 92,000 became full-time self-employed, compared with 30,000 in the previous three months.
 
Nevertheless, mortgage lenders continue to improve strict rules making it harder than ever for newly self-employed entrepreneurs to get on the property ladder. Most lenders insist on at least two years of accounts from prospective home buyers which is impossible for newcomers to the self-employed arena.
 
Daniel Bailey, of independent mortgage adviser Middleton Finance, said: "Borrowers going from employed to self-employed do not realise the implications this has on being able to get a mortgage.
 
"A client who went self-employed doing the same job and earning more money was rejected for a mortgage."
 
Prior to the global economic crisis, banks and building societies allowed ‘self-certification’ mortgages which allowed people to state their income without any official verification.
 
In the current climate, self-employed individuals are required to be able to prove their income by having a strong and reliable track record.
 
There are no mortgage applications specifically designed for self-employed or freelance individuals. Instead they must apply for a regular home loan; it’s just the way in which proof of income is required is different.
 
Employed workers are only required to supply payslips and P60 documentation to prove their income. But the self-employed application process is different. For example, High Street bank, Halifax insist on proof from HM Revenue and Customs (HMRC); an original copy of an SA302 document which displays the total income received and total tax due.
 
For newly self-employed entrepreneurs that don’t have two years’ worth of business records, it still may be possible to secure a mortgage.
 
David Hollingworth, of London & Country, said: “Some lenders may consider different circumstances so there may be scope where a borrower’s circumstances have changed, perhaps from a sole trader to limited company, or they have a good track record.
 
“Some lenders, such as Kensington, are prepared to look at a borrower with only one year’s trading.”
 
If you are thinking of going self-employed it may be wise to discuss your situation with an accountant so you can plan for getting a mortgage.
 
At TaxAssist Accountants we can work with you to ensure you are in the best possible position to secure a mortgage when it is needed.
 
For an initial free consultation with your local TaxAssist Accountant why not give our friendly team a call today on 0800 0523 555.

Date published 4 Feb 2014 | Last updated 4 Feb 2014