Today’s question concerns mortgages. Steve P in London writes:
“I’m so shocked! I make six figures a year but I can’t get a mortgage! What should I do?”
First of all Steve, thanks for writing in. We feel your pain.
Let me guess – you’re self-employed and have been for several years. Because you make such good money you’ve never had to borrow and because you’re self-employed, you cannot easily prove your income?
On the surface it sounds mad that the lenders are reluctant.
But a mortgage is a form of credit. You could think of it as a really really big credit card. And before a lender will lend, they like to see evidence that you are capable of servicing debt.
The first question mortgage lenders ask themselves before offering you a mortgage is, “Can he/she afford it?”
That’s why they want wage slips. They want to know that you make enough money to comfortably be able to afford the repayments.
If you’re self-employed and don’t have any wage slips, most banks and lenders will accept your company or businesses accounts for the last three years. And at a push, your tax returns. They usually insist that these are prepared or signed off by an accountant. So if you do your own accounts, you’re going to experience additional difficulty.
Secondly, they want to know that you are capable of keeping up with the payments. This is what your credit rating is supposed to tell them. But as another reader asked recently, if you’ve never borrowed before, you won’t have a credit rating.
So what’s the plan?
You could try and borrow from other places – friends, family etc. If that’s not a possibility, you may need to look around to find a mortgage lender who will lend to you, even if the rate they’ll give you is not the best.
There are now mortgage lenders who specialise in lending to the self-employed. But since we have no personal experience or relationship with any of them, we can’t make an informed recommendation.
Get any mortgage you can. And then after the fixed rate period, remortgage to a better rate. By that time, you’ll have a track record of keeping up with payments.
One member of the MoneyBlog team went and got a job with a company for a year, because he knew he was going to be applying for a mortgage very soon, knowing that once the bank had given him the mortgage, they couldn’t take it off him. Sneaky. But it worked.
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