The essential guide to remortgaging when self-employed
Remortgaging when self-employed can present unique challenges, especially for those who are newly self-employed. While it is possible to secure a remortgage in this situation, lenders may scrutinise your financial situation more closely compared to traditional employees.
By being prepared and understanding the specific requirements, you can streamline the process and potentially access competitive mortgage rates that meet your needs.
This guide will help you to understand how lenders assess self-employed mortgages, and what you will need to present as part of the remortgage application.
What does it mean to remortgage or refinance a property?
Remortgaging or refinancing a property involves taking out a new mortgage on the same property you already own. People may choose to do this for various reasons, such as obtaining a better interest rate, releasing equity for home improvements or for consolidating debt, or changing the terms of the current mortgage.
When you remortgage your property, you essentially pay off your existing mortgage with a new one from a different lender or with different terms.
Refinancing is often pursued when interest rates are lower with other lenders than with the current one, allowing homeowners to save money. It can also be beneficial if you want to switch from a variable rate to a fixed rate mortgage or extend or shorten the term of your loan.
Overall, remortgaging or refinancing offers homeowners the opportunity to manage their finances more effectively by adjusting their mortgage terms to better suit their current situation and financial goals.
When is the right time to remortgage?
When you take out a new mortgage, one of the key moments to diarise is when you are approaching the end of your fixed-rate mortgage term. This is a common trigger for individuals looking to secure a better deal before being automatically transferred onto their lender's Standard Variable Rate (SVR) mortgage, which more often than not comes with higher interest rates.
While you can technically remortgage at any time during your mortgage term, doing so before the end of a fixed-rate period may result in an early repayment charge. This charge is imposed by lenders to compensate for the interest they would have earned if you had continued with the original mortgage agreement.
Therefore, it's wise to review your current mortgage terms and compare them with available deals on the market when approaching the end of a fixed-rate period. By taking proactive steps towards remortgaging at the right time, you can potentially save money on interest payments and secure more favourable terms that align with your unique financial circumstances.
The good news for clients of Cleerly is that your dedicated Mortgage Consultant will contact you in plenty of time to discuss all available options and ensure you remain on the best possible terms.
Can I remortgage if I am self-employed?
When it comes to remortgaging, the good news is that an increasing number of lenders are now more open to accepting applications from self-employed individuals. Lenders are beginning to consider day rates and future earning potential as part of their assessment criteria.
One key factor that may influence how your application is assessed is the length of time you have been self-employed. Lenders typically look for a track record of stable income when evaluating mortgage applications, so the longer you have been successfully self-employed, the more favourable your application may appear to lenders.
It's worth bearing in mind that each lender will have different criteria when it comes to assessing mortgage applications from self-employed individuals. Some lenders may require a minimum number of years in business or specific documentation to verify income.
One of the key factors that lenders consider when assessing a self-employed individual's mortgage application is their income stability. If you have recently transitioned to self-employment, you may not have a long track record of consistent income, which could make lenders more cautious.
To navigate these challenges effectively and increase your chances of securing a favourable remortgage deal, it is essential to take proactive steps. This may include keeping detailed records of your contracts, income and expenses, maintaining a healthy credit score, and seeking professional advice from a mortgage broker specialised in working with self-employed individuals.
Self-employed since being accepted for mortgage
If you have transitioned to self-employment after obtaining a mortgage, it's essential to understand how this change can impact your financial situation. Lenders typically require self-employed individuals to provide proof of income through accounts for a specific period.
In most cases, lenders will expect to see at least two years of accounts as evidence of stable income. However, some may request three years of accounts, while a few might accept just one year's worth of financial records.
It is crucial for self-employed individuals who have recently secured a mortgage to maintain accurate and up-to-date financial records to demonstrate their income stability and affordability when applying for future loans or financial products. By keeping detailed accounts, you can better position yourself for success when dealing with lenders in the future.
Newly self-employed when considering remortgage
When it comes to remortgaging as a newly self-employed individual, there are some unique challenges to consider. Lenders typically prefer to see two years' worth of accounts to assess your financial stability and ability to repay the mortgage. This requirement can make it more challenging for those who have been self-employed for less than a year.
However, despite these hurdles, it is not impossible to secure a remortgage when newly self-employed. Seeking the assistance of a specialist broker such as Cleerly can be incredibly beneficial in navigating the complexities of the mortgage application process.
Specialist brokers have the expertise and experience in dealing with lenders who are willing to consider applications from self-employed individuals with shorter track records. They can help you present your financial situation in the best possible light and increase your chances of securing a remortgage that meets your needs.
So, while remortgaging as a newly self-employed individual may be trickier than for those with longer work histories, with the right support and guidance from a specialist broker, you can still find suitable mortgage options that work for you.
Top tips for self-employed professionals who want to remortgage
When it comes to remortgaging for self-employed professionals, there are several key tips to keep in mind to ensure a smooth and successful process. Here are five essential tips that can help you put yourself in the best position for lender acceptance:
- Maintain a good credit score: Lenders often consider credit scores when assessing mortgage applications. As a self-employed professional, it's crucial to maintain a healthy credit score by making timely payments on your debts and keeping your credit utilisation low.
- Get your financial documents in order: Lenders will require various financial documents to assess your income and affordability. Make sure you have all necessary documents, such as tax returns, bank statements, and profit and loss statements, organised and up-to-date.
- Show consistent income: Lenders prefer borrowers with stable income streams. If you're self-employed, demonstrating consistent income over time can strengthen your mortgage application. Providing detailed records of your earnings can help lenders assess your financial stability.
- Consider engaging a specialist contractor or self-employed broker: Working with professionals who specialise in mortgages for self-employed individuals can be beneficial. A specialist broker like Cleerly can provide valuable insights into the mortgage market, help you navigate complex requirements, and increase your chances of securing a favourable deal.
- Plan ahead and research available options: Remortgaging is a significant financial decision, so it's essential to plan ahead and explore different mortgage options available to self-employed professionals. Compare interest rates, terms, and conditions from various lenders to find the most suitable deal for your circumstances. Your specialist broker can help you with this and save you a lot of time!
By following these tips and seeking assistance from experts in the field of self-employed mortgages, you can improve your chances of successfully remortgaging as a self-employed professional.
Are you self-employed and exploring your remortgage options?
Regardless of whether you are new to self-employment or whether you’re a seasoned independent business professional, a self-employed remortgage application will be trickier than a regular employed one. Despite the challenges, Cleerly’s team of specialist mortgage consultants are on hand to help guide you through the remortgage application process and have a high success rate at helping self-employed professionals.