Although it used to be pretty straight forward and simple for the self-employed to obtain a mortgage, the new affordability checks mean that lenders are often nervous about lending to someone who in this category.
Since the new affordability tests were introduced by the Financial Conduct Authority, lenders have tightened criteria, meaning that some require at least three years of income details which have been submitted to HM Revenue & Customs via form SA302. As many mortgage applications are initially assessed by a computer, the self-employed may find that their application is rejected at the initial hurdle, without being examined by a person.
For existing mortgage holders, re-mortgaging can be a problem, as some lenders will offer products with a higher interest rate. A study conducted by Aldermore, a challenger bank, reveals that some people will even put off the decision to become self-employed, as they feel it will impact on a future mortgage application.
Some of the building societies and a small number of specialist lenders will often assess a mortgage application on its merits, rather than rely on a computer for the initial assessment, which may be beneficial for the self-employed. For those who can provide three years or more of their accounts, they may still face problems if profits take a slight fall, as this could affect the amount which may be borrowed.
Mortgage applicants are advised to seek advice from a mortgage adviser, who has gained knowledge of the regulations from a CeMAP course.
