Since the 2008 Credit Crunch, the mortgage market has changed considerably. One of the most significant changes has been the disappearance of the ‘self certified mortgage’ or ‘liar loans’ as they were sometimes christened by sections of the press. The self certified mortgage was primarily aimed at the self employed and it enabled people without a regular monthly paycheck to raise a mortgage and buy a home.
With the disappearance of the self certified mortgage, the self-employed mortgage applicant must now jump through many more hoops in order to prove income and affordability. A self employed person is usually defined as someone that owns 20-25% or more of the business.
The primary key to making an application smooth and painless is to be organised. Keep complete records of your income and expenditure. Make sure your books are kept up to date and keep copies of previous years too as two to three years accounts are usually required. Employing a certified or chartered accountant will make those books and annual returns more credible.
Another way to prove your annual income is to obtain an SA302 from the taxman. This can take two or three weeks to obtain, so make sure you apply early and get your paperwork in order.
Mortgage lenders are looking for a clear picture of your finances over time. They need to see that you are regularly profitable and that the business is stable. If you have a blip and a year is poor, make sure you are able to clarify why and illustrate that you are past that problem. If profits are falling, the lender will probably base lending on the lower figure.
Also, clean up your credit rating. You can use a variety of companies to check that your credit rating is in order. In addition, a larger deposit will help. A lender is quantifying risk and if you are able to reduce their risk by reducing the Loan to Value Ratio then you are likely to make the loan cheaper and more readily available.
Finally, if you own a limited company, retained profits or dividends may be considered by some lenders when you are applying for a mortgage. It’s a good idea not to make changes to the business or accounting periods immediately prior to your mortgage application. A lender wants to see continuity and predictable income flows, even though that is rarely the the definition of self-employment!
To speak to a buy to let mortgage adviser contact us on 01628 507477.
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