Millions of people work in self-employed roles or run their own business, and applying for a mortgage without a regular employment income can be tricky.
The difference is primarily that a lender needs to assess how much you earn per year, which is likely to vary for self-employed traders depending on multiple factors.
Usually, the easiest solution is to produce two to three years of accounts or tax returns and use these to assess your average income – a lender will usually be happy to accept this evidence. However, fewer mortgage providers offer self-employed mortgages.
The application becomes a little more complex where you have bad credit mortgage broker issue. It might mean that a bad credit specialist broker is your best opportunity to negotiate a competitive mortgage deal.
Providing Documentation to Back Up a Bad Credit Self-Employed Mortgage Application
The trick is to ensure you work with an independent broker and compile a strong application with all the supporting information a lender will need.
Reducing potential queries and identifying likely questions before they arise can mean you achieve approval much faster and won’t apply to inappropriate lenders who don’t offer the borrowing you require.
It’s also important to think about your finances if you intend to apply for a mortgage brokers.
For example, missing a payment or defaulting on your credit card bill can make a big difference, especially if a lender sees a recent bad credit issue when assessing a new mortgage application.
We recommend avoiding any short-term unsecured debt before applying. Anything like a payday loan can make it much more complicated to apply for a mortgage, as will dipping into an unauthorised overdraft.
Criteria for Self-Employed Bad Credit Mortgages
Every lender has a different set of policies and criteria they assess each application against. Still, a huge range of specialist lenders and niche mortgage providers offer products designed to help people with bad credit get onto the property ladder.
Lenders will look at various factors, such as:
- The nature of the credit issues – more serious problems such as bankruptcy will be more challenging to overcome, whereas missing a phone bill a few years ago won’t likely cause huge concern.
- When your credit problems happened – credit issues are removed from your report after six years, and the longer ago you experienced a default, the less impact it will have.
- Why you had credit issues – life events such as redundancy can cause credit problems, so the context may mean the lender can see that you experienced financial difficulties through no fault of your own, rather than poor financial management.
It’s essential to work with a knowledgeable broker who will be able to direct your application since while niche lenders offer greater flexibility, a mainstream mortgage provider is unlikely to approve a self-employed bad credit mortgage.
Improving Your Approval Changes on a Self-Employed Bad Credit Mortgage
If you’re keen to enhance your approval prospects or achieve a better interest rate, we can recommend several strategies that will help.
- Offering a higher deposit (about the 10-15% standard) means that you lower the lender’s risk, and they’ll usually offer a lower cost.
- Providing more trading history – three years of accounts is ideal. It shows a more stable trading history and self-employed experience that is a safer bet than someone with a new self-employed business.
- Use an independent broker – we negotiate directly with lenders, offer bespoke guidance, and will ensure you have access to any options that can lower your mortgage risk.
How Much Can I Borrow as a Self-Employed Mortgage Applicant With Bad Credit?
The standard calculation is based on a multiple of your annual average income, although this multiplier can vary considerably.
Lenders can offer anything from three times income to even six times your average earnings – although, with bad credit, it’s highly improbable you’ll be offered anything at the higher end of this spectrum.
It’s also wise to consult a broker if your trading income has changed considerably.
For example, say you have three years of accounts but earned dramatically more in the most recent period. A lender who will base your mortgage offer on the last year of trading will be able to lend far higher than a provider using a three-year average.
Joint mortgages where one applicant is self-employed with bad credit also depend on the combined earnings of both applicants and whether one of you or both parties has bad credit issues to contend with.
For more information about self-employment mortgages with a bad credit history, please contact Revolution Brokers on 0330 304 3040 or at info@revolutionbrokers.co.uk.
As a whole-of-market broker, we offer independent support and ensure you apply to the most suitable lenders to get your borrowing deal approved.
