Getting a mortgage when you’re self-employed – what’s different?

Guest blog by our contractor mortgage partner, CMME (Contractor Mortgages Made Easy)

Generally speaking, it is more challenging for self-employed professionals to secure a new mortgage or to re-mortgage. This is because of the information you’ll need to provide to your lender to enable them to assess your income.

Things may be exasperated further still if you are affected by IR35 and move between inside and outside IR35 roles, switching between Umbrella employment and limited company contracting. If you are re-mortgaging, it may be that your working arrangements have changed since you took out your last mortgage, meaning you’ll have to jump through additional administrative hoops to access the best deals.

However, there should be nothing to stop you being able to access the most competitive rates, but because it’s a little more complex for you, a mortgage broker may be the quickest and easiest way to get access to those deals.  CMME, our contractor mortgage partner, explains.

Remortgaging vs Product Transfer

When your current mortgage does come to an end you are normally presented with several options. Two common choices currently are to remortgage onto a new deal or complete a product transfer.

Remortgaging

Remortgaging means paying off your existing mortgage by taking out a new one with a different lender. Benefits of remortgaging can include:

• Lower interest rates if your home has improved in value
• Find a more flexible mortgage to match your goals
• Raise additional funds with extra borrowing – home improvements, special occasions, and debt consolidation
• Reducing the term of your current mortgage or how you repay it

Product Transfer

As product transfer is usually presented to you by your current lender towards the end of your current term and generally means moving onto a similar product. Benefits of a product transfer can include:

• Less paperwork for application
• Can be lower fees compared to a remortgage
• No legal work for solicitors and no property valuations

Breaking down your options (provided for illustrative purposes only)

Let’s say the current product offer you’re on has an Initial Rate fixed for the first 2 years: 0.87% . After these two years, you will automatically move onto the SVR: 3.59%   You don’t have to be a math prodigy to estimate, based on those two rates alone, that your monthly payments will be significantly higher on the second rate .

The mortgage amount: £350,000

The loan length: 25 years in total

On your initial rate, your monthly repayments are: £1,298.56. But on your lender’s standard variable rate your monthly repayments go up to £1,769.12 – an extra £470.56 a month or £5,646.72 a year – a significant amount, which can also change depending on the value of your home.

This could be avoided by discussing a new deal on your mortgage in advance of your current offer rate ending and moving onto the lender’s SVR.

Loan-to-Value (LTV) & Why it Matters

Your home may have increased in value since you initially took your mortgage.

This is important when looking at a new deal for your home as you may have also reduced the amount you owe. This means that you will require a lower LTV and this can mean you may be eligible for a lower rate.

If you wish to raise additional funds as well as renew your rate, the LTV will allow you to borrow more money, if needed.

When is it Best to Consider Remortgage While Self-Employed?

There are some key times you might want to reconsider reviewing your mortgage rate:

• It’s due for renewal and you’re about to move on to a Standard Variable Rate
• When you can see the end of your current deal on the horizon, that’s the prime time to think about remortgage, you can generally lock in a new deal about 6 months from your renewal.

If you choose to do nothing your lender will automatically swap you over to their Standard Variable Rate (SVR) which is likely to be higher than the deal you were on previously, as illustrated above.

There’s technically no ‘bad’ time to review your mortgage deal. Many people let early exit fees or early repayment charge (ERC), as they are also known, stop them from getting the best deal available.Whilst ERCs they are certainly something you should consider before changing deals, it may be the case that the associated savings with your new mortgage rate could be worth accounting for the early exit fees.

What To Do Next

If you want to discuss your mortgage renewal date and what is best for you, our partner CMME can help evaluate your current mortgage deal and the next best steps. CMME, one of the UK’s largest mortgage brokers, has helped over 100,000 independent professionals achieve their mortgage goals, achieving a 4.9/5 star Feefo rating.

To speak to an expert advisor, call 01489 555 080 or visit CMME’s web page for Workwell clients.

Your home may be repossessed if you do not keep up repayments on your mortgage.