Obtaining a mortgage if you are self employed has traditionally been somewhat more difficult than for those in regular employment. Being in this situation myself, I can definitely empathise with the heartache very often involved in finally being accepted by a lender willing to issue a self employed mortgage.

What’s The Problem?

The real crux of the problem is that lenders like people in full time employment because they are guaranteed a regular income and, therefore, are seen as less risky than we are. The good news is that in the past few years this is slowly changing. There are, of course specialist lenders dealing in self employed mortgages, but now, most lenders will actually be willing to issue you a self employed mortgage.

What Are They Looking For?

If you have been working in a particular field of employment for a while you will find it easier to get a self employed mortgage. If, on the other hand you are relatively new to your chosen endeavour, you may initially find a mortgage out of your reach.

In essence before granting a self employed mortgage, lenders are trying to ascertain how employable you are. Perhaps an example would demonstrate this: Now, if you were to compare a famous actor to an electrician, the electrician would be more likely to be granted a self certified mortgage than the actor. The electrician is able to show that he has regular work and thus regular income. He would be favoured over the actor, because the actor, although he perhaps earns a great deal per film, could not guarantee when he would actually earn.

How Much Can I Borrow?

In this respect self employed mortgages are really no different to any other type of mortgage. What you will be loaned, will depend upon what your earnings are and what the value of the intended property is.An average figure would be up to 75% of the value of the property, although many lenders will consider going considerably higher.

The actual amount is calculated as a proportion of your salary. Once again people wanting a self employed mortgage are no different to any other borrower. You will generally be loaned three times your annual earnings but for married couples you might be offered:

Two and a half times your joint incomesThree to three and a half times the larger of the incomes plus the annual salary of the lesser income.

Be aware, though that especially for self employed mortgages, other criteria may come into play when judging your suitability. Your regular outgoings may very well be scrutinised, including such things as regular bills, existing loans or debts, history of paying rent, whether the property’s price is in keeping with the area or over priced. The reason is that although you may qualify for a certain amount on your self employed mortgage, the lender wants to satisfy himself that you can actually afford the repayments.

Watch Out For This!!!

Now ANYONE who is self employed probably has the good sense to offset their business expenses against their earnings. Quite right too. The problem is that with self employed mortgages in particular, most lenders base their assessments on NET rather that GROSS income, and so those of us who do offset, may have shot themselves in the foot !!

If you have been caught out, you have the option to go for a self certified mortgage. This will help you out because proof of income is not required – your accountant just needs to confirm to the lender that you are able to afford the mortgage. 

I think it is safe to say that most of us who are self employed have a very good relationship with our accountants – I’ll say no more!