Mortgage applications are becoming increasingly problematic for those that are self-employed according to a top Liverpool accountant.
Russell Silverman, director of Haines Watts Chartered Accountants on Victoria Street, said that following the recent Mortgage Market Review, those that are self-employed are finding it difficult to be considered as desirable candidates due to the tighter criteria.
As a result of income fluctuations and irregular paycheques, many lenders will question the potential borrowers’ ability to repay a mortgage. He added that in order to paint the ideal financial picture and to be considered eligible for the loan, self-employed candidates must prepare a comprehensive plan.
Russell said:
“Gone are the days when lenders keenly distributed mortgages with barely any questions asked. Therefore, my advice to self-employed clients is to prepare an in-depth financial strategy prior to requesting a mortgage. This can be done by simply reviewing and documenting all of their finances from the previous two or three years.
“Also, it is advisable for the self-employed to aim for the highest possible credit score, pay down any outstanding debt and build a cash reserve to protect their assets.”
Before the credit crunch hit the nation, the self-employed could opt for self-certification mortgages, which did not require proof of income. However, this scheme was later scrapped as numerous people were overstating their income and taking out mortgages they could not afford – this led to tighter lending restrictions and mandatory proof of income.
Russell added:
“As the rise of self-employed clients continues to increase at a fast pace, people must be made aware of the key financial steps to put in place prior to a mortgage request.
“Our knowledgeable team of specialist advisors at Haines Watts can effectively support self-employed clients who wish to construct a financial strategy, which will hopefully ensure a positive mortgage application.”
A recent UK survey has revealed that the self-employed have dramatically increased in numbers by 367,000 between 2008 and the present day. One in six people are currently self-employed throughout the UK and these figures are expected to escalate over the next few years.
Ann Parker, a leading mortgage and equity release specialist at Parker Kelly Financial Services, who works closely with Russell and the Haines Watts team, said:
“As the number of people becoming self-employed has increased, the supply of lenders sympathetic to their needs seems to have dwindled – although there are still a few who do more than most to assist.
“All lenders are now becoming responsible for assessing that a mortgage is affordable and are putting into place far more rigorous tests, and so it is vital that everybody, and the self-employed in particular, seek proper professional guidance on how to ensure that they make a successful application for a mortgage. This is where the accountant and mortgage broker can work together to make it happen.”