These days, the art of mortgage broking means looking way outside the proverbial box. Coming up with suitable options for clients who feel that the average high street lender no longer seems to have the time, expertise or inclination to help anyone who doesn’t fit rather neatly into their categories is something we do on a daily basis at Coreco.
Step forward the ever-increasing legions of the self-employed, freelancers and contractors!
When I speak about mortgages to many clients working in this way, it is always the same response: “I don’t think I would be able to get one of those, I don’t tick the right boxes.”
It is true that things did become very tough for a while for anyone not in a stable 9–5 environment, but, as ever, the reality is not always as bad as the myth.
We are proud to say that professional mortgage brokers together account for almost 75% of all mortgage applications in the UK. We work hard to provide advice to hard-working business owners from all walks of life, who are too busy running their own businesses to run around high street bank branches wasting hours of time answering endless questions about how many coffees they buy a week!
The good news is that there are actually a wide range of options depending on how you choose to get paid.
The right paperwork
To ensure a smooth process, it really is all about the paperwork. If you do think you will be applying for a mortgage in the near future, it really will pay to get organised early.
Even if you have three months of pay slips as an employed director, if you have a shareholding of 20% or more, lenders will treat you as self-employed and want to see accounts.
The starting point for most lenders is to provide two or even three years of accounts and/or your last two or three years’ SA302s (otherwise known as your self-assessment tax calculation) and associated tax calculations as well. These can be obtained from your accountant or downloaded from your personal account online direct from HMRC.
It will help enormously if your accountant is properly qualified, for example ACCA, rather than just a bookkeeper, especially as some lenders will be able to work on just an accountant’s certificate.
If you are a contractor, keep to hand as many of your old contracts as possible, as some lenders will want to see up to two years’ history, while some want a nice CV. If it’s your first contract, again there are options if you have been in the same industry for some time.
Getting your bank accounts in order, and making sure you keep within overdraft limits with no returned items for six months before applying, will also help.
How much can I borrow?
Lenders these days work on affordability rather than income multiples, but if you have non-standard income the question is what will they define as your ‘income’?
For contractors, some lenders will work off the latest contract, essentially taking the day rate, multiplying it by five for a weekly rate, then by either 46 or 48 to get an annual income.
There are a variety of methods lenders employ to assess income if you are self-employed and it’s imperative to find a mortgage broker experienced in this field.
Most lenders’ approach is to take an average of the last two to three years’ net profit, but some will look at the most recent set of accounts or even just one year’s accounts.
Where lenders differ is that while some will just look at net profit, others will look only at salary and dividends. This may work for a few borrowers, but this means they will not take into account any retained profits.
Where there are retained profits that need to be taken into account, it’s important to approach the handful of lenders happy to consider share of net profit, retained or otherwise, as income figures.
While it may seem to be a veritable minefield, the good news is that there are options for the self-employed – in fact, many more than there have been for a number of years.
The myths and legends are just that.
By Andrew Montlake, Director at Coreco Professional Mortgage Brokers
Coreco is a leading London-based provider of mortgage and financial advice. It is an IPSE partner and IPSE members receive a £100 discount when they obtain professional mortgage advice through Coreco.
Notice to readers: Your home may be repossessed if you do not keep up repayments on a mortgage or any debt secured upon it. A fee of up to 1% of the mortgage amount may be charged depending on individual circumstances. A typical fee is £495.