The past year has seen many people experience a change in their financial circumstances. The Covid-19 pandemic resulted in work-life changes for many, from job losses, furlough, working from home or becoming self-employed.
According to figures from the Office for National Statistics, there are over 5 million self-employed people in the U.K.
Even though people have had to adapt to new ways of working due to the pandemic, it’s still harder for the self-employed to obtain mortgages.
Self-employed people might struggle to get mortgages as it’s harder for them to prove exactly what they earn or that their earnings will remain stable.
In response to the problems faced by self-employed mortgage applicants, OnlineMortgageAdvisor.co.uk has provided some advice and tips.
Typical rates available
If you choose to lock yourself into a fixed-rate deal, then typical rates can range between 2.5% and 3.5% during the introductory rates period. When you revert to the lenders’ standard variable rate, the rate can increase to upwards of 4%.
The calculations mortgage providers use will vary. But on average, most will multiply your earnings by 4.5. Some will multiply your earnings by 5 and very few will go as high as 6 if your circumstances permit this.
For example, if your freelance earnings average £30,000 over the last three years, most mortgage providers would cap their lending at £135,000. Some would go up to £150,000 and a minority £180,000.
Typical product fees
Product fees can range between £500 and £1,000. However, a specialist mortgage broker for the self-employed can help mortgage applicants find deals with lower rates and fees.
What are mortgage lenders looking for?
Mortgage lenders are typically looking for self-employed professionals who have been trading for at least 2-3 years. Self-employed mortgage applicants will also need to provide evidence of this.
Pete Mugleston, from OnlineMortgageAdvisor.co.uk, comments: "The amount of time you've been trading for can be a key factor when applying for a mortgage as a self-employed professional. The vast majority of mortgage lenders will need 2-3 years' worth of accounts to prove that your income is stable and high enough to cover the mortgage payments.”
Self-employed mortgage applicants with less than two years of trading history are more likely to be rejected by high-street lenders. Mugleston advises those with a shorter trading history to seek out mortgage brokers who specialise in self-employed mortgages.
Mugleston says: "There are mortgage brokers who specialise in self-employed applicants and they know exactly which lenders will accept an application based on one year's accounts… The bottom line is this: if you're self-employed with only one year's accounts, it's still possible to get approved for a mortgage and favourable terms, but you'll likely need professional advice to find the right lender."