Are you looking to get on the property ladder but struggling to secure a mortgage? The experts at John Charcol explain how self-employed electricians can improve their chances.
The mortgage market for those who are self-employed or contractors has grown to the point where last year 120,000 new loans were taken out by those who are self-employed โ an increase of 11% on 2015. In the same period loans for those who are employed grew by just 6%.
But isnโt it more difficult to get a mortgage when youโre self-employed?
In recent years lenders have become more cautious. Before the ๏ฌnancial crash in 2008, self-employed workers could apply for a โself-certโ mortgage where no proof of income โ such as tax returns, audited accounts or bank statements โ were required. However, the system was abused and as a result fast-track and self-cert mortgages were banned. Since then itโs become harder (but not impossible) for those who are self-employed, freelancers or contractors to get a mortgage.
So what do you need to know?
As a self-employed electrician youโll be applying for a normal mortgage, however youโll have to provide signi๏ฌcantly more paperwork to prove your income. As a minimum, youโll need:
โ Self Employed/Business Owner: As little as one yearโs trading with one yearโs accounts. You wonโt necessarily need to have an accountant but if you donโt have one, it may restrict your mortgage options. If you do decide to employ an accountant, make sure theyโre either a Chartered or Certi๏ฌed accountant. Generally, lenders will base their calculations on your most recent yearsโ net pro๏ฌt or an average over the period of two years.
โ Contractor: A track record of past work with a likelihood of future work. If youโve been contracting for less than a year then donโt panic!There are lenders in the market who o๏ฌer a less restrictive approach, especially if you can prove a track record of regular work in the same industry or role. So, for example, if youโve left full-time employment to work as a contractor, or you have evidence of future work, it will help to boost your application. If you already have a mortgage and youโre looking to remortgage, itโd be a good idea to start with your existing lender as theyโre in the best position to know your history but if theyโre unable to help, donโt worry, there will be other lenders that will consider your application.
โ A healthy deposit: Thereโs no escaping the fact that your chances of getting a mortgage will increase signi๏ฌcantly by having a large deposit. Itโll also help you secure a lower rate and could reduce your monthly repayments.
โ A good credit history: A clean credit history will boost your chances of getting a mortgage. Be aware, however, that as a business owner, the lender will credit-check both you and your business so itโs important to make sure your credit history is in as good a shape as possible, so ensure any unpaid or late debts are settled.
Applying for a mortgage
Before applying for any mortgage itโs important to get advice from both your accountant and a mortgage broker. A mortgage broker is invaluable when applying for any mortgage, but especially when youโre self-employed. Theyโll understand the lenders that are willing to lend to self-employed clients and, as importantly, theyโll be able to help you ๏ฌnd the best deal.
