Sam Dunn: 'We're self-employed – will we find a lender?'

House Doctor
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The Independent Online

Question: My partner and I have just left our previous jobs where we were employees to launch our own design company. But in all the upheaval, we didn't even think about our 3 year fix remortgage which comes up in February. As we'll both be newly self-employed, will we struggle to find a mortgage – will any lender have us? We've got good credit references and had been at our employer for years and years. Can you help? Rachel A, Dorset



Answer: Being your own boss just got that little bit harder. On top of all the usual new stresses of running your own business - a struggle to secure a mortgage is the last thing you need.



Yet being self-employed brings its own difficulties with home loans - without regular salaries, you pose a greater risk to lenders.



The self-employed have been tainted by controversy over so-called "self-certification" loans created for those with irregular income and who found it tricky to prove annual pay. Once a decent alternative to a bank or building society, they were hijacked by scandal during the housing boom. Fears grew of the deals being manipulated by unscrupulous borrowers to "enhance" their income and borrow unaffordable sums, earning them the sobriquet "liar loans". That was then.



After a recent review by the Financial Services Authority regulator, self-cert loans are to vanish - leaving the self-employed largely in the hands of their lenders who now ask for increasingly high hoops to be jumped through before granting a loan.



At first glance, your options might seem bleak, concedes Andy Montlake of broker Coreco. "With no lenders offering a self-certification product now and many insisting that you have been self-employed at least a year - or even two - with accounts before you can obtain a mortgage, this will be difficult."



Katie Tucker at Mortgageforce also warns that your both working for the same new company could be viewed negatively.



"It may cause problems that both of your incomes are tied up in the same new business risk," she says.



But you'll be looked upon more favourably if your debt is less than 75 per cent of the property value and "if you have gone self-employed but in the same industry, have a solid client base and projections from an accountant," she adds.



This most likely leaves you at the mercy of your current lender, says David Hollingworth of London & Country, but it might not be the horror you fear.



"At worst, you will revert to a variable rate with your current lender and with the base rate at 0.5 per cent that may not prove to be a bad proposition," he says.



On the hopeful side, adds Melanie Bien at broker Savills Private Finance, you may have an option from your existing lender: "As long as your loan-to-value ratio is below 90 per cent, your lender should be able to offer you a choice of fixed or discounted rates without reassessing your affordability."

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