Midweek Money: A Loan for All Seasons Mortgage Lenders Are Waking Up at Last: Many Self-Employed People Are Highly Solvent. by Rachel Fixsen
Fixsen, Rachel, The Independent (London, England)
Being self-employed does not mean that you are destitute. But try explaining that to a high-street mortgage lender. Nearly one in five of the UK workforce now works on a self-employed or temporary basis. Patterns of working have changed, but many mainstream mortgage lenders are still as reluctant as ever to lend to those with a fluctuating income unless they have solid proof of past earnings.
"It's nearly impossible to get a mortgage unless you have three years' accounts," says Stuart Drummond, a Wiltshire farmer who applied for a mortgage 18 months after becoming self-employed. "All the high-street names, the Abbey Nationals and Halifaxes, said `No way; come back when you've got three years' accounts under your belt.'"
Banks may see you as a riskier proposition than before, but for many people self-employment marks a phase of higher income. In the IT industry, for example, working as a consultant or on a self-employed basis usually means that your career has progressed, and you are earning more than as an employee. There are usually two options open to self-employed people looking for a mortgage. Either they opt for what is known as a status loan, which could be for up to 100 per cent of the value of the loan, and provide two to three years' audited accounts or tax statements. Or they put up a large deposit themselves, and borrow 75 per cent or less of the value. In this case, they can take the self-certification route, which means they do not have to give proof of income. The usual credit checks are carried out, and these may include a current or previous lender's reference and a bank reference. "Providing accounts can be a problem for many self-employed people," says Bryan Fisher, an independent financial adviser at Berkeley Financial Planning in Coventry. "When someone who has become self-employed in the last two years, the books may not look too good." The accounts often provide an inaccurate picture of the level of mortgage that the would-be borrower can in fact afford. Many expenses can be written off against tax, effectively shrinking the business's profits and therefore the amount a lender will be prepared to grant. "You are working with your accountant to try to make your taxable profit as small as possible, but it is that figure that will be used by the lender," says Mr Fisher. So if you work for yourself, the easiest way to get a mortgage is to put up at least a quarter of the property price yourself. Regardless of the lenders' faith in your ability to repay the loan, they then have the reassurance that they would - unless house prices fall by more than 25 per cent - be able to recover their money by selling the house. This also cuts out the need for a costly mortgage indemnity guarantee, or MIG, which covers the lender against any shortfall if the property is repossessed. Choosing the right lender is a key issue. The Nationwide subsidiary UCB Homeloans, the Mortgage Business and Bank of Scotland are three lenders that specialise in self-certification …
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Publication information: Article title: Midweek Money: A Loan for All Seasons Mortgage Lenders Are Waking Up at Last: Many Self-Employed People Are Highly Solvent. by Rachel Fixsen. Contributors: Fixsen, Rachel - Author. Newspaper title: The Independent (London, England). Publication date: October 28, 1998. Page number: 12. © 2009 The Independent - London. Provided by ProQuest LLC. All Rights Reserved.