Self Employed Bad Credit
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Self Employed Bad Credit
What are the main challenges in securing a mortgage for self-employed individuals with bad credit?
Essentially, it’s more challenging for someone to get a mortgage if they do have any sort of bad credit. It normally limits you to specialist lenders.
But if you’re self-employed you also need a longer work history to prove your income. Somebody who’s employed on PAYE will naturally have a copy of their contract and get payslips, so it’s very easy to prove their income.
The self-employed could only do that by submitting tax returns to HMRC and you need to have been trading for at least one year to actually submit tax returns.
The good thing is that most specialist lenders will be satisfied if you have been only self-employed for one year. Or, if there’s been a big jump in income, they could potentially look to use the most recent year.
But it does make it a little bit more challenging, in that you might need to wait longer. Whether you have adverse credit or not, if you’re self-employed you need to have been self-employed for at least a year to prove your income.
How can self-employed individuals with bad credit improve their chances of getting a mortgage?
One really important thing is to look at your credit file and see exactly what’s on it. People often come to us and are completely unaware of things on their file. Parking tickets or phone bills may have gone to previous addresses and end up leaving a CCJ or a default on the file.
They’re completely unaware of it and then they’ve been declined by a high street lender as a result.
You could go to credit report agencies like Experian or Checkmyfile and pay a charge, or use the free ones. They provide more limited data, but it’s always good to look at your overall credit profile. It will say if there’s any markers on you, like missed payments, defaults, etc., and then you can look to get those rectified.
Rather than burying your head in the sand, addressing them is certainly worth doing.
What documentation do self-employed individuals with bad credit need when applying for a mortgage?
Standard documentation is ID, bank statements and proof of address. Rather than pay slips for an employed person, self-employed people need their tax returns. These and your tax year overviews prove your income and confirm that any relevant tax has been paid. You get those documents directly from HMRC or your accountant.
Some lenders also might be able to work with an accountant’s certificate in lieu of tax returns from HMRC – but it does vary lender to lender.
Can self-employed individuals with bad credit get a mortgage without a large deposit?
The deposit isn’t affected by whether you’re self-employed or not. It’s more about the credit profile. If you have quite historical defaults on your file, there are lenders that will proceed with a deposit of around 10%.
If the adverse credit is fairly recent, you might need 15% or 20%. It’s the credit profile that determines the size of deposit you need, rather than your employment situation.
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What interest rates can self-employed individuals with bad credit expect to pay on a mortgage?
Similar to the deposit situation, your employment status won’t determine the interest rate you get. But people with adverse credit are likely to have to pay more.
A lot of the mainstream lenders have really competitive interest rates, but they need the cases to be fairly ‘vanilla’ and squeaky clean. They like straightforward, simple stuff because they don’t like taking risks. The more risky end is where specialist lenders come in.
Any broker who’s got access to lots of lenders in the market could give you more options. There are quite a few specialist lenders who are happy to take on people with varying credit issues.
What role does credit score play in getting a mortgage as a self-employed borrower with bad credit?
Typically people who do have adverse credit see that it affects their credit score negatively. But the good thing with specialist lenders is that they don’t really use credit scores.
They do a credit search instead to see exactly what’s on your file. If you have defaults or CCJs, the lender will want to know when they were registered, whether they’ve been satisfied and how much they were for.
You could have a credit score of 100 out of 999, but it wouldn’t necessarily be a problem with some lenders. Quite a few lenders will consider smaller adverse credit issues and accept people who are self-employed, but if there’s quite a bit on the file and a low credit score, it’s likely you would need a specialist lender.
Do any mortgage lenders specialise in lending to self-employed individuals with bad credit?
The majority of the specialist lenders for adverse credit are also good for people who are self-employed.
Again, they differentiate from a lot of the high street lenders who generally like people who have been self-employed for a longer period of time, perhaps two or three years at least. But the specialist lenders could consider somebody who’s got a clean credit profile, but has only been self-employed for a year.
They could also consider both scenarios – where somebody is self-employed and also has adverse credit. You might have also had a big jump in your business in the past year – they could help by looking purely at the latest year and considering the adverse credit as well.
What steps can self-employed individuals with bad credit take if they’ve been declined for a mortgage?
If someone’s been declined, typically they will have gone to their own bank and been rejected.
The important thing is to find out what’s impacted the credit file. Tiny things coul affect your score – like not being registered on the voting roll. Or as I mentioned, you might have a CCJ for something that went to an old address.
If you decide to pay that off, it would normally positively improve the credit score. That could reopen up lenders – it’s certainly one thing we would recommend. Again, if you do speak to a broker we could go through the credit report and see exactly what the issues are.
How long does it take for self-employed individuals with bad credit to get a mortgage offer?
It’s no different to someone who’s employed. One thing that could slow it down is the timing around your tax returns being available or, if you have an accountant, when they could send information through. But it doesn’t take any longer than for someone who is employed.
How can a mortgage broker help?
Very often we get people whose own bank has told them they couldn’t get a mortgage.
A broker is working for you and has a large panel of lenders. We should be able to find what on the credit report is causing you the issues and find who’s going to be the most suitable.
There are two elements for you – the self-employment and the adverse credit, and based on that we could identify the right lender for your circumstances.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
