Remortgage When Self-Employed
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Remortgage When Self-Employed
Kal Woodley explains how the remortgage process works if you are self-employed.
Is it harder to remortgage if you are self-employed? How does it work?
It’s not harder to remortgage your property if you are self-employed, or even if you have gone self-employed which changes from your previous circumstances.
There’s just an extra piece of work to be done – which is the preparation of your proof of income. That is something a lot of people underestimate. But it’s just a couple more steps. It always depends on how your income is generated and how it’s received – even where it’s received.
In applying for a mortgage, there are the same number of lenders for self-employed individuals as there are for employed individuals. It just comes down to good planning.
How long do you have to be self-employed to remortgage? Can you remortgage if you’re newly self-employed?
It boils down to the criteria of the lender. There’s no rule about how long you have to be self-employed to remortgage. The lender will look at your overall affordability and continuity is also quite a big factor.
For example, if you were employed for the last three years and then decide to go self-employed, and there’s no gap in income, a lender will take a view on that.
If you haven’t been employed, you’ve had some income gaps and then you’ve just gone self-employed, it’s still not the end of the world. We would just need to work with your bookkeeper or accountant to get some projections on your business plan and when that income is going to be received.
It does help if you have one year’s worth of self-assessment tax year overviews – SA302s, they used to be called. If you are the director of a limited company and have one year’s worth of accounts, that is also helpful.
But by no means do you have to complete a full year. It’s just a case of controlling the narrative and painting the correct picture for the underwriter.
How does the self-employed remortgage process work? Any differences here in that process?
Self-employed income can be from multiple revenue streams. For landlords, for example, rental income can be used. Some people are self-employed as consultants who receive income from UK entities but also foreign entities, maybe in different currencies. Or, you could be a tradesperson, working as a subcontractor as well as a local tradesperson.
All these incomes are relevant, but the catch is this – lenders and brokers can only use income that has been subject to tax. So if you’ve got self-employed income, a lender will want to see that tax has been paid.
I stress that heavily, because I have a lot of clients who tell me they have done various jobs, but HMRC and lenders don’t like the phrase ‘cash in hand.’ We can only use what’s on paper and subject to tax.
Can you remortgage with no proof of income?
Again, the underwriter will take a view. If you were looking to purchase a home, the likelihood is very slim.
However, if you have kept up with your mortgage, there’s been no missing payments and you’re looking to remortgage like-for-like, on a product switch with your existing lender, they don’t usually ask for proof of income.
You’re able to remortgage if you’re employed or self-employed. But if you have no proof of income, you have to also ask yourself if that’s a smart position to be in. It’s always right to talk it over with your advisor.
Proving income and actually having an income are two different things. But you should always be in a position to prove your income – for all different things, not just remortgaging and mortgaging. You can remortgage with no proof of income, but it’s not the smartest position to be in.
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Can I remortgage if I have bad credit as someone who is self-employed?
It’s no different from someone who has bad credit and is employed. There are lenders out there that have specific products, priced accordingly. They treat applicants the same, whether they are employed or self-employed.
So yes, you can remortgage with bad credit. Of course, there’ll be a lot of questions asked from the underwriter and from your advisor.
Preparation is key. Please prepare for full disclosure – be very transparent with your advisor or the underwriter. There’s nothing worse than seeing something that hasn’t been disclosed at a late stage in the application. It just leads to more questions.
If you believe you have bad credit, the first thing is to look at your credit report. I look at mine every six months just to check my financial health. If there is a blip on there that can be easily explained, it shouldn’t stop you remortgaging your property.
Can a self-employed person be declined a remortgage?
If you have stayed with your existing lender, there would have to be a very specific reason as to why you would be declined. The fact that you’re self-employed or employed should not make a difference whatsoever. It will be up to the lender’s discretion, but it must be well documented and justified.
One reason this comes up is where a client, either employed or self-employed, wants to remortgage to raise some additional cash by releasing some equity. If the lender deems from their current proof of income that they cannot afford that, the remortgage could be declined.
But if it is a like-for-like request, pound for pound, there are no missing payments and clean credit, there’s got to be a very justifiable reason as to why a lender declines a remortgage. I would question that and also seek advice.
How can I better my chances of a good remortgage as someone who is self-employed?
Preparation is key, and if you’re self-employed, get your tax year overviews in, get them completed, pay your tax and work with an accountant or bookkeeper to file it. Some sole traders do their own tax returns, which is great.
You need proof of paying your taxes. That could be via bank statements or a statement you can download off the HMRC website.
If you want to borrow more, that’s where you need to do a bit more prep. You need to show a very clear business plan demonstrating that the business is expanding, you’re taking on more orders and have contracts to prove that.
Substance and structure always help you show a lender you’re all set to get more money. You have to put that into a structured context for them to visualise, with proof that it can materialise. That’s what I would say for a sole trader.
For directors of limited companies or an LLP as well, getting those accounts filed in place and done is key. It can be really frustrating when we’re looking to purchase a property or remortgage one and a client has outstanding business accounts.
That actually puts the brakes on for the whole mortgage process. We have to go back, talk to the accountant, do the accounts and that takes time and money. So be prepared, get ready.
What are the benefits of remortgaging?
The good thing about remortgaging is that it potentially allows you to switch to a better deal. Rates go up, but they also come down. At the point of your remortgage, you may be able to secure a better rate. You could switch three to four months in advance of your current fixed-term ending, for example, and that improves your cash flow. You can become a bit more cash buoyant on a monthly basis.
The other positive is that remortgaging can be a time to assess your financial position. Maybe you are earning more and can afford higher mortgage payments. You could reduce your mortgage term – perhaps from 25 years to 22.
When you come to remortgage, you don’t always have to go pound for pound, like for like. Assess your position. Can you pay off more? Do you want to switch to another lender on a better rate, or are you happy with this lender? If you’re not happy with the perks they’re offering, you can move.
Remortgaging allows you to take a pause and look at the service you’re getting. Working with mortgage advisors can help – you may have questions about incentives that some mortgage lenders offer for self-employed individuals. You might choose to switch to a lender that serves you better.
What else do we need to know about remortgaging when self-employed?
Again, it’s about preparation and full disclosure. Have all your bank account statements ready, your proof of income and proof of address. You’ll always hear your mortgage advisor ask for your KYC, that’s ‘know your customer’ documentation.
There are many lenders who work with self-employed individuals. It doesn’t matter what your circumstances are in terms of income. As long as your income is documented and it’s been taxed, we can help. Make sure that any blips on your credit record are fully disclosed. Your mortgage advisor should be able to help source you the right mortgage for you.
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME.
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 REPAYMENTS ON YOUR MORTGAGE.
