Employees can typically borrow three times their gross salaries, couples in regular work can normally borrow 2.5 times their joint income. Payslips are normally enough evidence to support an application. For the self-employed the convention is that they need three years' audited accounts to apply for a loan. Immediately, this puts the newly self-employed at a disadvantage: they might not have three years' accounts; and paying an accountant to certify the books can be expensive.
Stories abound of freelance workers being refused loans with little explanation, or self-employed people being offered loans that are too small to be worth while. While it is true that the self-employed find it harder to borrow money than salaried staff, it is becoming easier.
"Generally, the situation is improving," according to Len Tondel, of the Home Business Alliance, which represents small businesses. "This is not on the strength of small businesses being more affluent, but there is more will out there for discretionary mortgages to be made available. The institutions themselves are coming to terms more with self-employment."
A bank's own customers may receive the best treatment. "If somebody has a well-established relationship, but they do not have three years' accounts, we are not simply going to write them off. We would want to know what information they do have, but we have that flexibility," says Elaine Murray, mortgages spokesperson at Midland Bank.
The HBA's other recommendation is to use the services of a good mortgage broker or independent financial adviser (IFA). Mortgage brokers advertise widely, often under the banner of helping people with poor credit records find loans. A self-employed person might have an excellent credit history, but no guaranteed earnings, so it is worth checking that a broker has a track record in helping the self-employed. It is worth remembering that brokers can charge a fee for their services: this can be as much as 1 per cent of the loan.
Anyone without a regular income has the option of a non-status mortgage. This is a loan of 75 per cent, or less, of the property's value. Lenders need no proof of income, because they are confident that if they repossess the house, they will recover the debt. For someone with a lump sum, a non-status mortgage is worth considering, not least because a loan of 75 per cent escapes being charged mortgage indemnity insurance.
One lender, the Kensington Mortgage Company, sells non-status loans through brokers but its standard mortgage deal carries an interest rate from day one of 9.77 per cent. "All of our mortgages cost more because they are specialist mortgages," admits Chris French, the chief executive. "Self- employed people come to us because we ask for their income to be certified over the last 12 months, and we don't tend to ask for accounts."
A common complaint from the self-employed is that lenders do not understand their accounts, especially the way that expenses, such as buying a computer, can be set against tax. There is a contradiction: for tax purposes, freelances want their income to look as small as possible; when it comes to borrowing money, the reverse is true.
Sometimes, this means the high street is not the best place to find a mortgage. Lenders are recognising this and are marketing specialist packages directly. Allied Dunbar and Bank of Scotland have linked up to produce a mortgage for directors and the self-employed; while Nationwide has a specialist arm called UCB Homeloans covering this market.
"You don't need three years' accounts on a self-certified mortgage," says Louise Laurie at UCB. "But we have a strict credit-scoring system, and you do have to have been self-employed for three years. For a non- status mortgage, we will lend up to 75 per cent."
Next week: Pensions.
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