Empowering the Freelance Economy

Mortgage lenders to lower fixed-rate mortgages

Do some necessary preparation before you apply for a new mortgage and consider using a specialist broker that understands contractor and freelancer income fluctuations / Photo by ANTONI SHKRABA
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By Amplo Mortgages and Financial Solutions

The last 12 months have seen significant changes in the mortgage market. Anyone considering applying for a mortgage will have found this time especially daunting, especially if navigating through the mortgage market for the first time while being self-employed. Hearing rumours such as ‘if you run your own business getting onto the property ladder is almost impossible’ does little for one’s confidence.

However, the truth is that your application is not any more likely to be disapproved when you are self-employed – the key factor is to submit paperwork that meets the lender’s lending criteria.

On the 3rd of November, the Bank of England base rate increased to 3% – an 0.75% point increase which is the highest hike since 1989.

Depending on the type of product that you have, you may have seen an increase in your monthly mortgage repayments.

Those who are on a tracker mortgage or discount mortgage would have been affected whilst those with a fixed rate coming to an end will be affected once it ends.

How far in advance can you lock in a fixed mortgage rate?

Those who have 12 to 18 months left on their current fixed mortgage should check their paperwork to see what their current rate is and what their early repayment charge may be.

If you have high early repayment charges, it is most likely not worth moving before your current deal is due to end as you’ll probably be paying more than you’re actually saving.

However, you can look to secure a new fixed mortgage product, potentially up to 6 months before your current one ends. This means that you can lock in at today’s rate, an opportunity to avoid any rate increases, whilst if rates fall you can secure a lower rate than you have already secured.

When’s the best time to speak with a broker?

Using a mortgage broker comes with an extensive list of benefits from having access to someone who is highly experienced and knowledgeable to having access to a panel of lenders offering exclusive rates from some lenders that only a broker could access.

For those with an existing fixed-rate mortgage, it can be wise to speak with a mortgage broker around 3 to 6 months before your current fixed-rate product is due to end. Alternatively, if you have a tracker or standard variable rate mortgage, you can look at securing a fixed-rate product as soon as you like.

For first-time buyers, it can be a good idea to speak with a broker before your property search. That way, you have a strong understanding of what you could borrow and what properties you’ll be able to afford.

What to be aware of when applying for a mortgage?

Those who are self-employed will be assessed on net profits, not turnover and if you chose to legally minimise declared profits to pay less tax, you could find it harder to get a mortgage. Company directors’ affordability will generally be assessed on their declared salary and dividends, however, certain lenders may be able to use the company’s profit and directors’ salary as proof of affordability along with supporting evidence in the form of 12 months of accounts.

You will more than likely need to provide Business Accounts and/or Tax Returns as evidence of income for your mortgage application. For business accounts, it would be preferable to show two to three years of accounts, usually signed off by a charted or certified accountant. For Tax Returns, you might be asked to provide two years of tax calculations and tax year overview forms.

You can also provide different forms of income as well such as pension income, investment dividends and Government benefits.

What’s your mortgage safety net?

Another area to think about now that you’re self-employed is how will you be able to pay for your mortgage payments if you were to become ill or injured and unable to work. It can be a good idea to build a savings pot as a contingency. Alternatively, you could look into income protection insurance and for a regular monthly payment, you can have peace of mind that you will receive a monthly income if you’re unable to work.

DISCLAIMER

As a mortgage is secured against your home or property it could be repossessed if you do not keep up the mortgage repayments. The purpose of this article is to provide technical and generic guidance and should not be interpreted as a personal recommendation or advice.

Author Bio:

Amplo Mortgages and Financial Solutions is an award-winning mortgage brokerage, advising on residential, buy to let and commercial mortgages and can also arrange life insurance, critical illness and income protection.

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