Over the past year, many self-employed workers have found it tough to get the mortgage they need.
If you run your own business or are a sole trader, you may have found yourself essentially locked out of the mortgage market, as lenders tightened their affordability criteria for self-employed mortgages during the coronavirus pandemic.
But, after an arduous year, there may be some hope for self-employed homebuyers as criteria appear to be easing. Read on to find out more.
Self-employed applicants had been locked out of the market
At the start of the coronavirus pandemic, mortgage lenders tightened their criteria for self-employed mortgages, as many business owners saw their incomes reduced.
As a result, some lenders began asking for an extra year’s accounts and more bank statements to check that self-employed applicants’ income hadn’t been negatively impacted by the pandemic.
Santander even started asked for a minimum of 40% on deposits from self-employed buyers. According to the Office for National Statistics (ONS), the average house price in Scotland was £164,099 as of January 2021. A 40% deposit would therefore mean self-employed borrowers would need a £65,640 deposit for the average property.
Signs of hope as some lenders relax rules
Fortunately, there may still be hope for you if you’re self-employed and looking to get a mortgage, with some lenders relaxing their criteria.
TSB has removed its loan-to-value (LTV) cap for now, offering self-employed workers 10% deposit deals.
Even Santander has relaxed its especially harsh rules, asking for 25% deposits rather than the 40 – 45% they had been asking for. While 25% may still be hard for many applicants to meet, the reduction itself suggests that the market for self-employed mortgages is softening.
Previous income may still be relevant for affordability checks
Bear in mind that some lenders may still take a critical view of historic levels of income, even on those lower LTV deals.
On the plus side, you may also be able to include any retained income in your business with some lenders, rather than just the amount you took as profit. This could help you meet affordability criteria, boosting the chances of lenders accepting you.
Some lenders may even take a favourable view of historic income.
Santander has confirmed that, as a one-off for this year, they have the ability to ignore 2020/21 income figures impacted by Covid. Instead, they will take an average of the previous two years to calculate your affordability.
A mortgage broker is invaluable here, as they’ll be able to scour the market and find the deals with the most favourable criteria for you.
Get in touch
If you’re self-employed and would like help finding a mortgage deal that’s right for you, please get in touch with us. We’ll be able to look at a range of mortgage deals and recommend the ones you’re most likely to get accepted for.
Email firstname.lastname@example.org or call 0131 339 2281.
Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.