Self-employed people can often seem at an unfair disadvantage when it comes to applying for a mortgage. Some lenders may be more demanding about proof of income, and they will typically want to see at least two years’ worth of accounts. The situation can be even more complex if your credit history reveals some red flags to lenders.
However, self-employed people can often end up with a bad credit score through no fault of their own. They are reliant on their customers paying their invoices on time, and in the real world, this doesn’t always happen.
A few late or missed payments from bad clients can soon translate into a shortfall in accounts, and this can have the knock-on effect of the self-employed person having to delay their own payments. However seriously they take their financial commitments, the sole trader may find that have one or more adverse events on their credit record.
Self-employed people are also more vulnerable to one-off expenses, for example if they have some equipment damaged or stolen and they need to replace it. Even if they can claim the costs back on insurance, they may face the choice of getting into debt to replace it immediately, or cancelling work and missing out on vital income.
Many other events beyond their control may occur, such as illness, accident, or injury, which they have to cover the costs of themselves. Natural disasters such as hurricanes, floods, or fires, can also disrupt their work and cause extra expense and a break in income.
In fact, there are many scenarios in which a self-employed person may have incurred blemishes on their credit record, which do not necessarily mean that they are financially irresponsible. Freelancers and those on zero-hours contracts often have uneven incomes which are not viewed favourably by most lenders.
Unfortunately, not all lenders will take the reasons for adverse circumstances into account, and they may refuse a mortgage application on the grounds that there is a record of debt or late or missed payments on the credit file. It’s not all bad news however, as there are specialist lenders who will look at each application on a case-by-case basis.
It is important to seek some independent mortgage advice, because without professional guidance, it is very difficult to know which lenders might accept you, and which will turn you down. Refused mortgage applications will damage your credit history further, so you need to tread very carefully.
If you have had serious credit issues within the last six months, such as Individual Voluntary Agreements, bankruptcies, or County Court Judgements, it’s best to wait for at least 6 to 12 months before applying.
In the meantime, do as much as you can to get your finances in good shape, meet all your repayments on time, and improve your income stream if possible. If you would like to talk to IVA mortgage specialists, please get in touch today.
Your home may be repossessed if you do not keep up with your mortgage repayments.
There may be a fee for mortgage advice. The actual amount you pay will depend on your circumstances. The fee is up to 1% but a typical fee is £595.
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Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it. There may be a fee for mortgage advice. The actual amount you pay will depend on your circumstances. The fee is up to 1% but a typical fee is £595.
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