This year, National Freelancers Day looks pretty different compared to previous years. An IPSE (Association of Independent Professionals and the Self Employed) and Freelance Corner’s event celebrating the independent professional will be a virtual one on Thursday 18 June, and will offer advice and guidance on freelancing during the COVID-19 crisis.
No doubt about it, the self employed have been hit hard through the coronavirus pandemic. At the end of last year, in an overview of self employment across the UK, the Office of National Statistics reported there were over five million self employed people. That’s five million people who may have scrambled to claim through the government’s self-employed income support scheme, which offered a taxable 80% grant of their trading profits up to £2,500 a month max. And that’s five million people who have likely seen a significant change to their income.
In the wake of COVID-19, all borrowers should expect to see numerous and frequent changes to lending criteria while the mortgage industry adopts and adjusts to the subsequent ‘new normal’ across all types of lending. This could particularly impact the self employed, freelancer, or contractor who have always found it harder to get a mortgage - as if you didn’t have enough stress.
A self employed mortgage application can be tricky
Pre-credit crunch, some mortgage providers required little or no evidence of earnings in order to offer what was known as a self certification or 'self cert' mortgage, but these are a thing of the past. In 2014 the MMR (Mortgage Market Review) and in 2016 the subsequent MCD (Mortgage Credit Directive) introduced far stricter rules in lending, making it seem tougher still for anyone with non-standard earnings to borrow. Now here we are, in an economic downturn, making proving stable income and affordability when you’re self employed all the more difficult.
Apply for a self employed mortgage with a good credit score
Here’s how to improve your chances of being approved for a mortgage if you’re self employed:
- Use an independent broker to help you find suitable lenders who have lending criteria that matches your circumstances
- Check you have no adverse entries against you in your credit profile
- Ensure you are on the electoral roll
- Keep your accounts up to date, pay bills on time, and keep a clean credit record
- Don’t use payday loans
- Avoid using comparison sites that run multiple credit checks
- Stay away from reaching your credit card limit
- Try to repay more than the minimum on your credit cards
- Prepare your deposit as soon as possible if you are purchasing a property
Get your documents in order for a self employed mortgage application
Having the right paperwork to hand will make the application process smoother:
- Valid photo ID
- Proof of address (like a utility bill, a council tax letter, or bank statement)
- Six months of payslips and P60s
- Three years of SA302s and an HMRC overview
- Three months of salary fed bank statements and business bank statements
- Proof of build up and holding of deposit
- Life insurance proof
For most mortgage providers:
- If you’re a limited company director, then you’ll need the last two years’ worth of fully signed accounts.
- Contractors will need to provide the last 12 months’ worth of signed contracts showing completed payment rates.
- Construction Industry Scheme or Umbrella workers will need to provide six months of payslips.
- If you recently set up your own business after being made redundant during lockdown, you are less likely to be accepted by the majority of mainstream lenders.
- You should expect lenders to look at the industry you are working in and to assess whether it has been or may be impacted by the pandemic.
Find a mortgage provider willing to look at individual self employed applications
Known as ‘manual underwriting’, the provider won’t rely on an automated process when assessing the mortgage application. This will be of benefit to self employed mortgage applicants who often have more complicated applications. Speaking with a broker with experience of this market will help applicants match with the most suitable lender.
At Ipswich Building Society, we pride ourselves in offering mortgages to people who don't necessarily fit the normal lending criteria and our qualified mortgage professionals are experts in understanding and reviewing mortgage applications from the self employed. We can’t promise to lend to everyone, but we do promise to consider all applications on an individual basis.