First Time Buyer Mortgages for Self Employed
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Written by:
Alison Gibson
Ascot Mortgage Expert
Last Updated:
04.12.2023
Written by:
Alison Gibson
Ascot Mortgage Expert
Last Updated:
04.12.2023
First time buyer mortgage for self employed people
In the days before the credit crunch, self-employed people were able to self-certify their earnings in order to obtain a mortgage. These often-dubbed ‘liar loans’ were often easy to get, requiring little or no evidence of earnings. But, from the onset of the crisis, lending criteria became much stricter and self-certification mortgages ceased to exist. As mortgages are harder to get, how can people who are self-employed get a mortgage?
- These are general guides; every lender will have different criteria, different amounts of flexibility and much will also depend on your deposit and credit rating.
- Self-employed people are usually classified if they own more than 20-25 percent of a business.
- If you are self-employed, then any mortgage provider would need to see proof of your income; usually from a qualified accountant.
- If you are a sole trader or partnership the lender will probably take the net profit figure as the income amount. For a limited company, the amount will be salary and dividends.
- An SA302 from the Inland Revenue, is often proof for people who do their own tax returns.
- The amount required is often two or three years proof, but some lenders may be happy to see just one year.
The way that the mortgage application is assessed is usually based on historic profits and incomes, although some lenders might want to see a forecast of the business for the next year or few years ahead.
Income requirements for self employed mortgage applicants
Traditionally, lenders would offer mortgages based on amounts of multiples of salaries; but now lenders tend to offer loans based on affordability, which means that self-employed people should have a clear amount of how much they have to pay a mortgage before applying.
First time buyers fall into this category; the difficulty for them comes if they do not have the required evidence for income. For example, if a first time buyer has only had a business for six months, then it can be difficult for them to get a mortgage and the applicant might have to wait until they have the required amount of records.
The same problems apply to any buyer, not just first-time buyers: proving the income; demonstrating that the business has longevity; showing that there is affordability for the mortgage. But as first time buyers, the biggest challenge could be obtaining the deposit to get the mortgage in the first place. The good news is that the housing market is picking up as lenders are willing to offer affordable products with lower deposits; some as low as ten percent.
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How self employed applicants can improve their lending options
There are other things that first time buyers can do to improve their chances of getting a mortgage, especially if they are self-employed. Getting a credit card, using it sparingly and paying it off in full every month is one way to improve a credit rating. Making sure that you are on the electoral roll at your current address is another method of increasing your chances of acceptance. Having a comprehensive set of paperwork linked to the address with no gaps- for the past three years or for however long you have lived there- is another thing that can be done.
Being a first time buyer, who is self-employed, does not exclude you from home ownership. It just means that you need to be alert to the potential problems and able to overcome the small problems-such as missing paperwork- that might prevent acceptance. As the market picks up, and mortgages look to get affordable with smaller deposits, there is no reason to imagine that first time buyers who are also self-employed should be excluded from this.
Alison Gibson
Ascot Mortgage Expert
Unlocking New Possibilities: The Power of Remortgaging Your Home
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living in your present property while applying for another mortgage deal with a new lender. Before finding out how to remortgage and get the best offers from experts like Ascot Mortgages, you have to check meeting what parameters of the deal that can help you succeed the most. The range of background factors varies a lot — from the recently changed loan-to-value ratio or your existing agreement coming to an end.
Whether you are trying to get a more beneficial deal or searching for funding to improve your home conditions, remortgaging is one of the most advantageous scenarios to consider.
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FAQ
A guarantor mortgage is a type of mortgage that involves a third party, usually a family member or close relative, guaranteeing the mortgage repayments on behalf of the borrower. This arrangement is more commonly now known as joint borrower sole proprietor as the guarantor essentially is included as part of the mortgage application but not included on the title deeds to the property.
Shared ownership is a form of home ownership that enables buyers to purchase a share in the property and pay rent on the remaining amount. The buyer usually pays an initial deposit, which is between 5% to 10% of the price of the share being purchased, and then pays a reduced rent on the remaining portion owned by a housing association or other organisation.
A joint mortgage is a type of mortgage that two or more individuals take out together to purchase a property. It allows multiple borrowers to combine their incomes and share the responsibility of repaying the mortgage loan.
The loan-to-value ratio (LTV) is a financial term that represents the ratio between the loan amount and the appraised value or purchase price of an asset, typically a property. It is commonly used by lenders to assess the risk associated with a loan.
Repayment and interest-only mortgages are two different types of mortgage repayment structures. Here’s an explanation of each:
- Repayment Mortgage: A repayment mortgage, also known as a capital and interest mortgage, is a type of mortgage where your monthly payments cover both the interest on the loan and the repayment of the principal amount borrowed. Over the term of the mortgage, typically 25 to 30 years, your monthly payments gradually reduce the outstanding balance. At the end of the term, assuming all payments have been made, the mortgage is fully repaid, and you own the property outright.
- Interest-Only Mortgage: An interest-only mortgage is a type of mortgage where your monthly payments only cover the interest charges on the loan. Unlike a repayment mortgage, you do not make any principal repayments during the term of the mortgage. As a result, the outstanding balance of the loan remains the same throughout the mortgage term. Therefore your monthly payments are less. However, lenders may restrict the maximum loan to value on an interest only basis – generally between 50% to 75%.
With an interest-only mortgage, you are required to have a separate plan or investment vehicle in place to repay the principal amount at the end of the mortgage term for residential mortgages. This could involve savings, investments, or other arrangements that aim to accumulate sufficient funds to pay off the loan. It’s crucial to ensure that the repayment plan is robust and will be able to cover the loan amount. For Buy to Let mortgages lenders will typically accept sale of the security property as the investment vehicle.
Consider a longer-term mortgage if:
- You prefer lower monthly payments to manage your budget.
- Affordability is a priority, allowing you to allocate funds to other financial goals.
- You plan to sell or refinance in the near future.
Opt for a shorter-term mortgage if:
- Minimizing total interest payments is important.
- Building equity quickly is a priority.
- You plan to stay in the property for an extended period.
- Ultimately, the decision should align with your financial circumstances and goals.
Consulting a mortgage advisor can provide personalized guidance.
Yes, it is possible to get a buy-to-let mortgage as a first-time buyer, but it can be more challenging. As a first-time buyer lenders may view you as a higher risk and will also base their lending decision on both rental income and your own personal affordability. However, if you have a good credit score, a stable income, and a solid business plan for your rental property, you may be able to secure a buy-to-let mortgage. It’s important to shop around and compare different lenders to find the best deal for your individual circumstances which is why contacting a mortgage broker for the right advice is a good solution.
Yes, you can get a first-time buyer mortgage if you’re self-employed but most lenders would require a 2 year minimum trading history. However, additional requirements may apply. You’ll need to provide evidence of income, such as business accounts and tax returns. Lenders may request an accountant’s certificate and consider your trading history. A larger deposit may be required. Specialist lenders may cater specifically to self-employed borrowers. It’s best to consult with a mortgage advisor or lenders directly for personalized guidance.
Apply for a first-time buyer mortgage when you have prepared your finances, saved for a deposit, and are ready to commit to homeownership. Consider obtaining a Decision in Principle before house hunting. Consult with a mortgage advisor for personalized guidance.
When budgeting for homeownership, consider the following costs: –
- Deposit: Set aside funds for the down payment on the property.
- Stamp Duty or LBTT: Pay the property tax based on the purchase price.
- Solicitor or Conveyancer Fees: Budget for legal services.
- Valuation and Survey Costs: Account for property valuation and survey expenses.
- Mortgage Fees: Consider arrangement or booking fees associated with the mortgage.
- Home Insurance: Plan for building and contents insurance.
- Moving Costs: Budget for expenses related to moving your belongings.
- Ongoing Costs: Include mortgage repayments, council tax, utilities, maintenance, and service charges.
Ensure you research and estimate these costs to create an accurate budget. Our advisors are always available to assist you in finding the most suitable deal for your unique situation.
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Ascot Mortgages authorised and regulated by the Financial Conduct Authority and can be found on the FCA register (www.fca.org.uk) under reference 776062. The FCA do not regulate some forms of mortgages. The guidance and advice contained in this website is subject to UK regulatory regime and is therefore restricted to consumers based in the UK. There may be a fee for mortgage advice. The precise amount will depend upon your circumstances but we estimate it will be £399 per mortgage account. Ascot Mortgages Ltd give you the option to pay a non-refundable fee of £879 payable with the application. If this option is taken, Ascot Mortgages Ltd will refund any procuration fee received by the lender.
Ascot Mortgages Limited is registered in England and Wales and have their registered office at 8 Webster Court, Westbrook, Warrington, WA5 8WD. The company’s registration number is 06764971.
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