Everything you Need to Know About Self-Employed Remortgages
The hunt for a remortgage deal is a daunting prospect at the best of times. If you’re self-employed the search can be even more complicated, and if you were employed or had a higher income when you successfully applied for your existing mortgage, it can be particularly difficult to understand what you need to do differently now you work for yourself.
We talked to Yorkshire’s 5 star rated CeMAP qualified and FCA approved specialist mortgage broker Simply Lending Solutions to help you fully understand the particular requirements for self-employed mortgage applications, and how the right mortgage broker can help make the process less stressful.
Read on to understand the top 6 reasons for remortgaging, and the difficulties and options for the self-employed.
Remortgaging versus a mortgage, what’s the difference?
Many people are confused by all the terminology around mortgages and especially self-employment versus employment. However, remortgage versus a mortgage is pretty simple; if you’re moving to buy a home you’re applying for a mortgage, if you’re staying in the same property then it’s a remortgage.
1. Your introductory deal is ending
By far the most common reason for seeking a remortgage is the end of your current introductory deal. Whether it’s a tracked discount rate or a fixed rate, the end of your initial mortgage terms generally means the start of higher monthly repayments. Shortly before your introductory offer ends then you will no doubt start looking around for a new deal that keeps those repayments down.
2. You need more flexibility
If your circumstances have changed since you took out your existing mortgage, whether because you were an employee at the time, or because your business is performing better or worse than it was before, then you may look think about remortgaging in order to find a deal with more flexibility. Flexibility could include the opportunity to make overpayments if you are financially better off than previously or take payment holidays if you need to access the money you would normally being paying toward your mortgage.
3. You want to invest in your business
It is possible to remortage your home in order to release equity with a view to investing it into your business. However, it’s important to note that some lenders will refuse to lend for business purposes. In these circumstances it is more important than ever to speak to a mortgage broker who is experienced in securing deals for self-employed mortgage applicants.
4. You think you can get a better rate
You may have decided that there are better interest rates on the market than the one your current deal offers. Securing a deal with a lower interest rate by remortgaging could save you money, although you should also factor in the cost of any penalties attached to early redemption of your existing mortgage.
5. You have debt that you’d like to consolidate
This is a tricky one. While it may appear to make sense to consolidate debt into one lump sum, you need to be aware that you will generally be converting unsecured debts into a secured debt. In these circumstances it makes sense to seek formal financial advice about your debt situation.
6. Your property is worth more than it used to be
If you’re home has increased in value since you took out your current mortgage, for example because you have made significant improvements, then you may well be able to secure a mortgage in a lower loan-to-value band than your existing deal. This could mean lower interest rates.
The difficulties in remortgaging if you’re self-employed
Proving your income
If you were working for an employer when you applied for your current mortgage you’ll know that you generally prove your income to lenders by providing them with your payslips. Now you’re self-employed this option isn’t open to you.
In order to prove your income you’ll need to supply either your accounts or your self-assessment tax returns (SA302). This should be straightforward, although a possible complication is that accountants will often seek to minimise the level of your income in order to reduce your tax bill. Therefore if you do think that you will be looking to remortgage in the near future it’s worth speaking to your accountant about the best way to represent what you earn.
Another hurdle could be the length of time you have been self-employed. Many lenders will require accounts for the last 3, or at least 2 years. If you’ve only recently started working for yourself this could pose a problem. A specialist mortgage broker with experience of working with the self-employed should have access to lenders who will accept accounts covering a shorter period.
Showing your income is stable
As an employee you have the advantage of being able to show a prospective lender a contract of employment which is generally enough to show that your income is both stable and secure.
When you’re self-employed you may be able to demonstrate the security of your income by showing that you have work scheduled. Some lenders may also be willing to look at your income over several years both to get a sense of how consistent it is, and also to assess how much you are likely to earn going forward.
The advantages of a specialist self-employed mortgage broker
When you seek advice from a professional mortgage broker who works with specialist and high street lenders you’ll get the benefit of their years of experience securing remortgages for self-employed people like you.
We’ve already discussed how they’ll know which lenders will accept accounts covering less than 2 years, but they’ll also be aware of all the other criteria that lenders use. This includes whether they’ll average out your previous income to help calculate your future earnings, and how they’ll approach applications from subcontractors, freelancers and company directors who own the majority of their business.
Using a specialist broker greatly increases the likelihood of you finding the best mortgage deal and reduces the chances of having your application declined. Although there may be fees to be paid to a broker, in the vast majority of cases these are offset by the savings you can make by securing a lower interest rate.
At Simply Lending Solutions, they’re so confident in their self employed remortgage processes that if they can’t find you a better deal than your current lender, they’ll complete your mortgage application with your current lender for free. That means none of the hassle of doing it yourself, with all the upside of being able to search the whole market for a better deal!