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UK Mortgages & Loans -> Self Employed Mortgages

Usually it has been a lot harder for a self employed person to obtain a mortgage compared to an employed person. This is basically due to the fact that mortgage lenders actually prefer to see a regular income which is guaranteed by employment. Though, in recent years this has changed.

Nowadays, there are some mortgage lenders who actually specialise in providing mortgages for the self employed person. Because of this, other mortgage lenders have become aware of the interest shown for these types of mortgages and have decided to provide them as well as their other mortgages.

If a self employed person has been involved in a specific industry for a number of years this would be a great advantage to them obtaining a mortgage.

Mortgage lenders are concerned in finding out how employable the borrower is. For instance, a plumber may actually be in a better position to obtain a mortgage compared to that of say a film director. This is solely because the plumber would more than likely be able to get regular, weekly work, whereas, a film director may only be able to get work for a few months here and there. It would not be that regular.

If the borrower is new to their area of business it could prove to be a problem for them until they are able to show a regular source of income.

If the self employed borrower is on a "short term contract" it would be more beneficial for them to obtain a mortgage if they are able to show that they have a regular contract with the same person (the contract has been renewed). The more time the contract lasts, the better it would be for getting a mortgage. Other lenders could ask to see a pattern with the contact renewals over a period of one or even two years.

The amount of money that a self employed person could borrow for their mortgage would actually be based on how much money they earn and the value of the property that they are looking at purchasing.

The majority of mortgage lenders will lend around 75% of the total property's value. Some may even lend as much as 90 or 95%. There are a few that may consider lending the borrower a mortgage of up to 100%, although with these the borrower will probably pay a lot more on repayments than they should and they may be required to purchase a mortgage indemnity insurance.

Assuming that the borrower has a regular income and a clean credit history they will more than likely obtain a mortgage loan quite easily. Regardless of the impression that they could be given that they would need to impress the lender, the actual competition between mortgage lenders for obtaining new customers is extremely high.

The mortgage amount that someone could borrow may change from each lender but average is three times their yearly earnings. However there are some classic variations which would include two and a half times the yearly incomes of a couple for a joint mortgage or three times to three and a half times the highest income and one year’s total of the second income.

Nowadays, a few mortgage lenders use a more highly developed credit rating method. This is where they look at the borrowers’ income as well as their outgoings. The notion of this is that each borrower has a unique status. A borrower who has teenage children and very high expenses cannot afford to borrow as much money as that of a single person who is earning the same salary.
One thing that the borrower need to be aware of when applying for their mortgage is that the amount they are told they can borrow (by the times scale) is not necessarily how much they can afford to repay monthly.

A borrower could be offered a mortgage which stretches their budget to the maximum but may leave them in financial trouble when they have to pay all the other costs that are involved in purchasing their home as well as the other future running costs of it.

A few mortgage lenders may want to estimate this amount by checking the borrowers’ average expenses, for instance the household bills and any existing debts such as loans or credit card payments. Some lenders will ask the borrower to complete a detailed questionnaire so that they can see the financial commitments of the borrower.