Self Employed Struggle to Get a Mortgage.

by Mark Johnston

Self Employed Struggle to Get a Mortgage.

 According to the Office For National Statistics, approximately 4.2 million people in the UK now working for themselves.

The number of people working for themselves has jumped by nearly one million since 2006 and the increase appears to be largely due to high unemployment which has forced many workers who lost their jobs to start working for themselves.

While the number people self employed has increase, the number of mortgages given to self-employed workers has plummeted by around 72 per cent over the same period.

Last year, just 47,400 of these particular borrowers were granted home loans, according to figures from the Council of Mortgage Lenders (CML).

This fall in mortgage availability is at least in part due to the fact that before the credit crunch nearly one in four mortgages was granted on a so-called self-certification basis, where the borrower did not have to prove their earnings.

 The Financial Services Authority (FSA) has now however effectively banned these particular mortgages in an effort to foster what they consider to be more prudent lending.

It does also seem that record self-employment figures have unfortunately coincided with strict new mortgage affordability criteria which mean many micro-business owners are now facing an uphill struggle to secure the borrowing they need.

Today, most lenders now demand strict checks on a borrower’s credit worthiness, especially for the self employed and therefore they usually require up to three years of accounts to prove income.

For example, the HSBC and its sister bank First Direct now demand a borrower has three years accounts before they qualify for a home loan.

Although, Northern Rock, NatWest and Santander will  accept someone with accounts for just two years and Leeds building society will accept one year with a projection of results and a 20per cent deposit.

Ray Boulger, senior technical manager of broker John Charcol, says: “It is true there can be a “computer says no” response from some banks to someone working for themselves but who can not prove their income”.

Once a lender has decided that the borrowers accounts are in order the next hurdle is the amount they are willing to offer. There can be a big difference in the way banks calculate the amount they will lend to self-employed borrowers.

For example, if a business has one bad year in two or three, this can make a big difference to the amount its owner can borrow.

David Hollingworth, director at mortgage broker London & Country, says: “For someone who has recently become self-employed and does not have a few years’ accounts, things are very difficult. It is a case of finding a lender who will accept you rather than being able to negotiate on rate or deposit size.”

When you are self employed, applying for a loan can be time consuming and overwhelming, especially when you do not meet the bank’s strict lending criteria, but all is not lost and there are still some lenders out there willing to lend to the self employed it is just a matter of finding them!

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