Freedom, flexibility, the opportunity to really take charge of your own career, there are loads of benefits to being a self-employed tradesman. Unfortunately, being able to get a mortgage easily isn’t one of them. As scores of independent tradesman have learned the hard way over the years, being your own boss can usually feel like more a hindrance than a help when it comes to getting both feet firmly on the property ladder, particularly in the last decade.
Sure, there was a time prior to that big economic meltdown back in 2008 when plenty of tradesmen found that they could get hold of a “self-cert” mortgage simply by declaring their earnings and flashing a smile at the lender, but things have changed so much since then that those days seem like an entirely different lifetime ago.
Today, the hurdles placed between self-employed tradesman and a mortgage can seem almost insurmountable, though that doesn’t necessarily mean that they are. Here, we outline a simple, step-by-step process for getting your foot on the property ladder as a sole trader or small business owner, and provide our top tips and expert advice on how to make the whole process as easy as possible.
Work on improving your credit score
Mortgage lenders will always look at your credit history regardless as to whether you’re self-employed or working for somebody else. When you’re going solo, however, your credit score becomes even more important.
First, use companies like Equifax or Experian to determine your score. If it shows some serious room for improvement, set about paying off outstanding debts, managing credit card payments and exploring practical options for improving your score.
Though it does take some years before any defaults and debts stop impacting your rating, the more you can do now to improve your score, the better your chances at making a favourable impression with lenders later down the line.
Get on top of the books
When the time comes to finally apply for your mortgage, your lender is likely to ask for at least three years worth of financial accounts from your business, so it pays to get them in order sooner, rather than later.
Look, we get it – managing the books can be a chore, which is just one reason why you might be better off investing in the services of a professional accountant who can do the hard work for you. The other reason for doing this is that many lenders actually insist that your accounts are prepared by a certified or chartered accountant, so you’ll find it easier to use this approach right from the start rather than doing the books yourself and then paying somebody else to go through them again.
Build your business
When looking at your accounts, mortgage providers ideally want to see that your business has shown steady growth over the years. Failing that, it’s important to show that you’ve at least remained stable without any significant losses.
Instead of simply letting things tick along as they are, consider ways that you could grow your business further and increase your revenues. Not only is this going to help get lenders on your side, it could also mean more money in your bank account which can only help when it comes to proving you can afford the repayments.
Consider how you manage your earnings
It isn’t uncommon for trade business owners to minimise their own earnings in order to avoid handing over large sums to HMRC. Whilst this may have been a good idea so far, it does mean that you’ll find yourself in a difficult position when it comes to borrowing the amount you need.
Consider making the necessary changes to increase the amount of money that goes from your business into personal earnings and improve your borrowing power.
Start building your deposit
As a self-employed tradesman, there’s no getting away from the fact that you’ll need a larger deposit than you would if you were in traditional employment.
With that in mind, as you start building your business and improving your earnings, put as much of those earnings aside as possible so that you’ll have as much capital as you can possibly get to put towards your new home.
Curb your spending
As you get closer and closer to submitting your mortgage application, slap a padlock on your wallet and start reigning in your spending.
Being self-employed, lenders are likely to ask you for at least three months of personal bank statements. They’ll be looking closely at these for signs that you’re good at managing your money and will be able to keep up with repayments.
Spending on things like gambling or large, unnecessary purchases such as new TVs can be off-putting to lenders, so its time to put a stop to those things and be strict with your spending.
Use a broker for a better mortgage deal
Though it isn’t compulsory to use a mortgage broker, they can often prove to be your best friend when the time comes to finally put in an application.
Many of the best deals for self-employed mortgage applicants are available exclusively through brokers, meaning taking this approach can often eliminate much of the costs and complications of finally getting both feet on the property ladder.