There are a growing number of people in our society who choose to work for themselves and are therefore regarded as self-employed. Such individuals may be required to apply for specialist self-employed mortgages when buying a home rather than traditional mortgages. This is because high street lenders typically regard such workers as high risk when it comes to lending money.
Working on a self-employed basis can have its advantages and an estimated one-quarter of the UK's workforce choose to work for under this arrangement. Unfortunately for workers who choose this lifestyle, securing a mortgage without any hassle is not one of the advantages. People who work as employees generally find it easier than the self-employed to secure standard high street mortgages. This is because they normally possess documents that will prove their income so lenders perceive them as having income security.
However, this is not the case for the self-employed and because of this specialist home loans for this type of worker have become readily available in recent years. Lenders may sometimes consider applications for standard high-street mortgages from self-employed applicants if they can provide three years worth of accounts that show a healthy profit. This is not possible for many self-employed workers because they may have been in business for less than three years and the income shown on their accounts may have been mitigated for taxation purposes.
In recent years, many lenders have recognised this dilemma and have subsequently brought specialist self-employed mortgages to the market to cater for it.
These products are also known as self-certification mortgages and offer relief to this type of worker as they do not require full proof of income or employment status. Instead of providing proof of income with accounts, pay slips, or any other documents, the home loan applicant will simply declare their income on the application form.
Despite the fact that no proof is required, people applying for self-employed mortgages should beware that it is still considered fraud if they exaggerate their income in order to borrow more money. Just because lenders do not require a full disclosure of documents it does not mean that an applicant can write whatever they like for their level of income.
Applicants should only borrow what the can afford to repay regardless of the amount of proof required by the lenders of self-employed mortgages. By borrowing more than they can afford to repay an applicant may be setting themselves up for financial disaster later in life, particularly if interest rates rise substantially.
The various self-employed home loan products which are available from many different lenders have different terms and conditions so it is a good idea to speak to an independent mortgage adviser in order to find out which products are the most suitable to your circumstances before applying. An independent broker will be able to advise on the entire market and will not be tied to any particular lender or products. This will help to ensure that you receive the best possible advice and will be able to choose from the widest range of products.
