Finding a suitable mortgage lender when you’re self-employed can be anything but simple. The nature of self-employment can make it difficult to prove to lenders that you have a stable income or that you will reach meet affordability criteria.
When you have had poor credit in the past however it can be even more difficult to find a self-employed mortgage, and you may have to work harder to convince a lender that you are worth the risk. At Simply Adverse, we think that few problems are insurmountable. So, before you give up read on and find out how you can improve your chances of finding a suitable lender.
The causes of having a poor credit history when you are self-employed generally reflect those of the wider population. Missed loan or mortgage repayments, CCJs, or unauthorised overdrafts, but there are some ways in which self-employed people may be more vulnerable to having a poor credit, often through no fault of their own.
When you work for yourself, particularly if you are a sole trader or a run a small business, you are extremely reliant on your customers paying their bills on time. Failure to do so can impact not just on the financial health of your business but also on your personal finances.
If you do find yourself in this position it’s important that you try as much as possible to avoid making your credit rating any worse than it already is. For example, missed mortgage repayments can have a significant effect on your likelihood of getting a mortgage in the future. If you do find yourself in difficulty then it’s always best to speak to your current lender to try and find a solution.
Sudden business expenses could tempt you to fall back on short-term financial solutions such as payday loans. These are a particular red flag for lenders. Unauthorised overdrafts can also be an issue so as far as possible try and arrange an extension to your current provision if you can.
If you have a sufficiently high limit, and you are certain you can keep your payments up, it may be better to consider using a credit card to make any unplanned purchases.
While you cannot be a director or involved in the management of a limited company while you are an undischarged bankrupt you can continue to trade as a sole trader. If you have found yourself in this situation in the past you should have taken and received appropriate financial advice to advise you of your responsibilities following bankruptcy.
While Simply Adverse can’t offer you advice on how to handle your bankruptcy we can help you deal with the aftermath. The most significant consequence will be on your credit rating. Bankruptcy will damage your credit history, but the good news is it won’t make it immediately impossible for you to find a mortgage deal. Much will depend on how long ago your bankruptcy was and how much deposit you are able to raise.
An IVA (Individual Voluntary Agreement), can be used as a debt solution to avoid bankruptcy. An IVA for a self-employed person works in much the same way as an IVA for an employed person. All interest and charges on unsecured debts are frozen, and an agreement is reached with your creditors for you to pay off any debts.
The repayment plan is drawn up with an insolvency practitioner (IP), and creditors must agree to it. If the amount paid into the IVA is not enough to cover your debts these can be written off. Bear in mind that there will be fees to pay to your IP.
Debt to trade creditors can be included in your IVA, and you may find that in certain circumstances HMRC will accept an IVA proposal. In general, if the amount that you owe to HMRC is less than your total debt, an IVA will probably be accepted. You will be able to continue trading during the period of your IVA.
An IVA will stay on your credit file for 6 years , but as with all forms of adverse credit professional advice from an independent mortgage broker can mean it is still possible to find a mortgage deal.
While we don’t have a time machine that we can lend you to reverse any previous poor credit history you may have, we can give you an idea of some of the steps you can take as a self-employed person to help mitigate some of the problems you may have because of your adverse credit.
Keeping your accounts up to date will make it easier for a prospective lender to get an accurate picture of the state of your business. If you’ve had financial difficulties in the past but your business is relatively successful, accounts can demonstrate that you are now more able to manage your financial affairs.
If you file your Self-Assessment tax return online you can print off SA302 form directly from HMRC. These will demonstrate your earnings for anything up to the last 4 years.
You can still request SA302 forms from HMRC if you file paper returns. Just bear in time that it will take time to receive them.
Any lenders will insist that your accounts are signed off by a chartered or certified accountant. Even if they don’t, accounts put together by an accountant may assure lenders that the accounts are accurate.
Remember though that an accountant may want to minimise your income in your business accounts to reduce your tax burden. While this is perfectly legal, it may be disadvantageous when it comes to applying for a mortgage.
We’ve already mentioned that your chances of finding a suitable mortgage deal after bankruptcy are improved if you can find a more substantial deposit. This really applies to any type of bad credit mortgage application. While it may not be easy to build your personal savings when you are self-employed, if you can put a little more aside, you may find that a bigger range of deals are available to you.
We’ve already mentioned avoiding payday loans and the like, but we really can’t emphasise too strongly the need to stay on top of your spending. Your recent credit history has a massive impact on mortgage lenders’ decisions. Put bluntly, if you have had adverse credit in the 6 months prior to applying for a mortgage, you are very unlikely to find a deal.
Being a self-employed person with a poor credit history can be a bit a of a double whammy when it comes to getting a suitable mortgage deal. However, working with an independent expert mortgage broker at Simply Adverse can help you to find a deal that is right for your individual circumstances.
Our brokers bring to together their specialist knowledge of the adverse credit mortgage market, together with their understanding of the particular issues facing the self-employed to provide a bespoke service that can help you secure a successful application. Contact us today to find out how we can help you.
We can help with lots of scenarios and work with differing personal situations to help with affordability and get you the mortgage you need; such as: -
Contact us today to find out how we can help you.