Remortgage When Self-Employed
Finance the purchase of a home, commercial premises or real estate investment
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Remortgage When Self-Employed
Is it harder to remortgage if you are self-employed?
It doesn’t necessarily have to be. But in terms of documentation and maybe extra underwriting points for an adviser to worry about, yes, it probably is a little bit harder. That said, it’s not as hard as people might think.
How long do you have to be self-employed to remortgage? Can you remortgage if you are newly self-employed?
High street banks generally look for two years’ accounts or tax computations. However, some lenders will work with one year’s accounts. In a very few situations, less than that may work.
That might be where a doctor or a solicitor is buying into a partnership that’s been running for a long time. They’ve just gone self-employed themselves, but they’re going into something longstanding. We can do something with that.
Generally speaking, though, you need two years’ records with most lenders.
How does the self-employed remortgage process work?
There aren’t many differences, but early advice and action on the customer’s part is key.
We would never tell someone what they need to put on their accounts, but we all know that your accountant can do some magic.
It might be that you need to move in a different direction or rethink your numbers a little bit. It’s much easier to do that before you’ve done your finalised accounts and submitted them to HMRC – for obvious reasons.
Figuring out early what you need for your mortgage before you talk to your accountant might just save you some pain down the line.
Can you remortgage with no proof of income?
The only option I can think of for that technically isn’t a remortgage. If you’re already with a lender, you can stick with them and take out a new product. We would call that a ‘rate switch’.
That’s very light touch, with no underwriting. They’ve already lent you the money and you’re not making any changes. You’re just picking a new product with that same lender.
In that situation, you probably won’t need to provide proof of income. But if you are changing lenders, you will always have to prove what you earn.
Can I remortgage if I have bad credit as someone who is self-employed?
Yes, and the same rules apply. It’s rare that I would look at a credit file and be concerned about something just because the client is self-employed.
Generally, lenders have a set credit profile that they accept, and they have self-employed rules. As long as you tick both those boxes, you’re good to go.
If you have some credit blips, seek advice early. Find out where you stand. An adviser can confirm whether or not you can still get high street rates for your remortgage.
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Can a self-employed person be declined a remortgage? Why might that be?
Possibly, yes – anyone could be declined a mortgage. It happens all the time and you can be declined for many reasons.
The most common reason for a decline is credit score – where the computer says no.
There’s sometimes no rhyme or reason: you just haven’t got enough points on your scorecard. Lenders keep their scorecards secret, but it’s logical that one might give a better weighting towards someone employed for five years in the same role compared to someone with just two years’ track record in self-employment.
The employed person might get more points and get through more easily – but it doesn’t always work like that. An adviser can normally explain why a certain lender said no, and just move to a new lender where it should work.
How can I better my chances of a good remortgage as someone who is self-employed?
It’s all about preparation. Unlike an employed person with three months’ payslips, you only get one shot to get your accounts in order and submitted – and that’s what a lender looks at.
One thing people do get stuck on is the difference between how accountants and HMRC define self-employment compared to a lender.
To a mortgage lender, you’re self-employed if you’re a sole trader or you own 25% or more of a limited company. Someone who owns 25% of a company and is paid only salary may see themselves as employed, but that’s not how a lender views it.
It’s critical to work that out early and make sure you’re going down the right path. What documents do you need and what do they need to look like? If you’ve had a drop in your latest year, why? Did you buy stock or new premises? Perhaps you put loads of money into a new contract – but that new contract is going to double your profit next year.
A normal employed person is never going to have to answer those questions, but we would need to get our heads around that.
What are the benefits of remortgaging?
The idea is to keep away from the standard variable rate, which is the higher rate you go onto at the end of your fixed or discount period. Your payments could go up dramatically.
It’s a bit like renewing your car insurance every year. You don’t normally just stick with the same provider – you look for one offering a lower premium. You want to stay away from those higher rates and look for cheaper money.
On top of that, you might be borrowing extra for some home improvements or a property investment opportunity. You might want to reduce your term, to cut down the overall interest.
As a broker, we would look at your current lender and the wider market to come back to you with a broad picture of what would be the right thing for you to do.
How can a mortgage broker help here? Is there anything else we need to know?
You’ve got to be proactive and you’ve got to get in early. You might phone a broker when you just submitted your accounts, and you suddenly want to remortgage and borrow extra. It would have been much better for you to have that conversation with a mortgage adviser a month or two before.
We always joke that accountants and mortgage advisers should be in the same office. What an accountant does and what a mortgage adviser needs can be very, very different. So seek advice early for the best possible remortgage results.
Key Takeaways:
- Preparation is critical for self-employed remortgaging, as you only get one opportunity to get your accounts in order and submitted for lender review.
- Most lenders require two years’ accounts or tax computations for self-employed individuals, though some may accept one year’s records.
- Early advice and action are key, particularly talking to a mortgage adviser a month or two before submitting your finalised accounts to HMRC to ensure your numbers align with mortgage requirements.
- You are considered self-employed by a mortgage lender if you are a sole trader or own 25% or more of a limited company.
- Rate switches with your current lender are a light-touch option that typically does not require new proof of income, unlike remortgaging with a new lender.
YOU MAY HAVE TO PAY AN EARLY REPAYMENT CHARGE TO YOUR EXISTING LENDER IF YOU REMORTGAGE.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.
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