The decision of the Financial Conduct Authority (FCA)
to outlaw Self-certification Mortgages in 2014 initially made it more difficult
for the self-employed to secure Limited Company Director Mortgage mortgages.
Some people who are self-employed may find it difficult
to provide official proofs of their income. However, it is not impossible for
self-employed individuals to access a mortgage. All that is needed is a little
more accountability and organisation in the self-employed person’s business
It will be helpful also to take note of these factors
which can affect their eligibility for the loan, and being able to provide all
the below to the mortgage broker will greatly help the application:
1 – Bad credit rating
Seemingly simple acts such as making payments for
business expenses using personal credit cards can significantly deplete a
credit card score. This will make it difficult for the business owner to secure
a mortgage, as lenders will be reluctant to risk their funds on such borrowers.
Before your application, take time to resolve your credit rating as much as
possible and bear in mind your mortgage broker will need to log into your
credit score account to show potential lenders.
2 – Inaccurate paperwork
Some people’s mortgage applications get rejected
because of inconsistencies in their business account documents. The best thing
is to get your accountant to review these documents to cross out the
possibility of errors before applying for a mortgage.
3 – Outstanding/bad debts
Outstanding debts make lenders baulk on granting a
mortgage. Bad debts set off alarms which alert them of the likelihood of the
borrower’s inability to repay the mortgage in the future. All debts should be
settled before applying for a mortgage, except for normal bank / car loans.
4 – Too many mortgage applications
This gives the impression of desperation to credit
agencies who interpret the multiple mortgage-related queries as the inability
of the borrower to secure a decent deal. It negatively affects the credit score
and thus further reduces the self-employed person’s ability to secure a loan.
5 – Invisibility on the electoral commission database
Sometimes, lenders run a background check with the
electoral commission as one of the requirements of accepting an application.
Understandably, they want to be sure that the borrower is actively involved in
the system and not just some “ghost” without a trace.
An application may be rejected if the borrower fails to
meet this requirement. Make sure you’re on the electoral roll – your credit
score will also improve because of it.
6 – Lack of a qualified financial accountant
Shoddily prepared account statements make it impossible
for the lender to properly track and interpret financial information. It is in
the best interest of the business owner to employ a professional who will
handle financial records.
Without mincing words, this point under discussion is
the reason why many self-employed people find it difficult to secure mortgages.
The cost of hiring a financial accountant to prepare accurate account records
that the lender can refer to is well worth it.
7 – Over-reliance on the company’s accountant
While it is good to have a financial accountant handle
financial records, negligence in getting acquainted with the finances of one’s
business will be counter-productive.
Think about it this way: if you do not understand your
own business’ finance, why should the lender trust you with their own money.
Finally, get the following documents handy:
- Account statements for the past 90 days.
- Account statements for all your asset and investment
- Paperwork revealing residential history dating back to
the last two years.
- Bank account statement as proof that there is a fund
available to make a deposit.
- Personal ID.