Money: Home help for the mortgage misfits

If you're self employed, can you get a decent deal? Faith Glasgow looks at the options and, opposite, how to do your own credit score
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The Independent Online
Being your own boss has many advantages, but ease of arranging mortgages has not traditionally been one of them. Lenders are extremely wary of high-risk applicants - and many self-employed people fall into that category because they cannot wave a salary slip as proof of regular income.

"Self employment", of course, is a term covering a multitude of situations. Long-standing one-man bands or small business owners will generally have the three years' audited accounts typically required by mainstream mortgage companies. But as Ivan Massow, a London-based financial adviser specialising in the financial needs of "unconventional" clients, points out: "People are now becoming self employed at a fast rate in the major cities, particularly in the media, fashion, the arts and IT." And these people encounter problems for several reasons.

In many cases their self-employed status means they don't have a sufficiently long income history to satisfy lenders. Or their employment status may have altered even though their circumstances haven't. Or there are the small business people who put all their expenses through the books to reduce income tax and national insurance contributions, but are left with a low bottom-line profit.

It's an irony, Mr Massow observes, that on one hand the job market opens its arms to a flexible trained workforce, while on the other, most mortgage companies now depend more on computerised credit assessments than on appraisals of individual circumstances.

"The industry needs to move with the times," agrees Chris Fleetwood, of specialist lender JW Mortgage Solutions. "It's still locked into the idea that we're all going to be in the same job at retirement age, and that employed people are more credit- worthy than the self employed."

There are ways round the problem. Unless you have the double drawback of self-employed status and a problematic credit history, Mr Fleetwood advises against the "sub prime lenders", such as Kensington, The Money Store and Paragon, who take on the higher risk associated with such borrowers at a premium interest rate. Instead, he suggests, you could look at specialist lenders such as UCB Home Loans, an arm of the Nationwide Building Society. The focus of its work is in self-certification mortgages. Assuming the borrower's credit history is sound, his or her accountant simply tells the company what he or she earns rather than having to produce accounts. For this UCB requires a deposit of 25 per cent. There's an interest rate weighting of 1 per cent on the standard variable rate, taking it to 7.94 per cent; but there are also more attractive fixed rate deals, such as a two-year fix at 5.29 per cent.

There is also more competition in the specialist arena. Britannia Building Society, for example, has launched Verso, while Bradford & Bingley has Mortgage Express. In addition, there are now attractive specialist products available from one or two mainstream pro-viders. Bank of Scotland's Personal Choice mortgage is a flexible vehicle allowing you the freedom to overpay or underpay, take payment "holidays" and re-borrow up to your agreed limit. Under its Special Status option you can borrow up to 80 per cent of the property value without necessarily having to provide details of your income. Unlike the specialist lenders, Bank of Scotland does not weight the standard variable rate for this option.

"Some lenders, such as Standard Life Bank, are now also looking at affordability rather than simply going on three times salary," says Ivan Massow. "They've been criticised because they are giving bigger loans in a low-interest rate environment, which could cause problems if rates go up. But I like them because they take account of my clients' lifestyles and outgoings."

Another interesting alternative is Virgin's innovative Virgin One account, which amounts to a current and savings account and mortgage all rolled into one - a sort of huge overdraft running until you retire. Every time you pay your earnings in, the debt reduces. You then draw day-to-day expenses out, but the more you can leave in, the faster you whittle down the debt.

"We intended it to be a good mortgage for the self-employed and those with more sporadic earning patterns," says a Virgin spokesman. "We expect to see some sort of accounts, but we don't stipulate three years."

n Contacts: Ivan Massow, 0171-539 7777; JW Mortgage Solutions, 01202 310668; Virgin One, 0845 600 0000; Bank of Scotland, 0800 810810; UCB Home Loans, 0645 401400; Standard Life Bank, 0845 845 8451.


1. Start with your own bank: it should know your financial record better than anyone and be more lenient.

2. The larger your deposit, the more favourable your reception will be with a high-street lender; you may well be able to play this off against a relatively short self-employed history.

3. Contract workers who can demonstrate a history of continuous similar employment are treated favourably, even by risk-averse lenders such as Abbey National.

4. Make sure you provide as much information as possible on your income, expenses and work flow.

5. An independent mortgage broker will save you time and energy, and should be able to find a good deal. "But make sure they know you're talking to others - it doesn't hurt to play one off against another, and it enables you to negotiate on fees," advises Chris Fleetwood.