Getting a Loan When You Are Self-Employed
Getting a loan or a mortgage when you are self-employed can be harder than it is for those who receive a steady income from a full-time job. Self-employed mortgages are offered based on different criteria because income is not usually consistent from month to month. With mortgages, self-certification mortgages are a thing of the past with the Financial Conduct Authority (FCA) banning them in 2011. Banks and other lenders are now required to always verify income. They need to go to greater lengths to do so with self-employed individuals as it is not as straightforward as submitting three months of payslips and bank statements. 
Who can get a self-employed mortgage?
Most lenders are willing to offer loans and mortgages to self-employed people if they have been trading for at least three years and have two years of accounts and self-assessment tax returns available to submit. Some lenders will ask to see a prediction of future earnings and potential future clients and contracts, to make sure mortgage repayments will continue to be afforded.
How is a self-employed mortgage calculated?
Each lender works out how much you can borrow differently, so you are likely to get a range of offers when you shop around. Offers may be based on your previous few years’ income, whilst others will base it on your previous year of trading only. It also depends on your legal status – whether you are a sole trader, a partnership or a limited company. As a starting point it is usually easiest to use a self-employed mortgage calculator to work out how much you can borrow.
Some tips to help you get a loan when self-employed
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Keep detailed business records
Proving income and loan eligibility is vital when looking for a loan as a self-employed person. It is therefore important for businesses to keep detailed records.
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Getting a secured loan is easier than an unsecured loan
Banks tend to be more flexible regarding income verification with offering secured loans for the self-employed who have owned a business for several years, who already own a property or have substantial equity. Self-employed individuals with a few years under the belt and some equity are likely to be deemed more stable and less risky to lenders.
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Shop around for a better interest rate
Loans for the self-employed are often offered at a higher interest rate than the average interest rate. Shopping around and getting several offers will help you get a better deal and if necessary, will put you in a better negotiating position.
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Get advice from a financial advisor
Get advice from a financial advisor – there are many free options online as a starting point. Financial advisors will advise whether you meet the requirements for a successful application, what you need to do to improve your application chances and they will generally help you find the right deals with lenders favourable to the self-employed. Propillo.com for example offer free mortgage advice across the UK, including for self-employed mortgages.
In conclusion, although getting a loan is generally harder for the self-employed; with an improving economy, some forward planning, perseverance and good advice – there are some good deals to be found.
