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One of the perks of being self-employed is off-setting expenses against your tax bill. Until it comes to getting a mortgage. While most people can borrow a straightforward multiple of their gross salary, the self-employed get only a multiple of their net income - that's earnings after tax and expenses. So if you've made £20,000, but your net income comes out as £5,000, you can borrow only around £15,000. Nightmare.
If you're lucky
When you visit your accountant with your newly-acquired self-employed status, he or she may ask if you'll be needing a mortgage in the foreseeable future. At this early stage, they can talk you through choosing either a lower tax bill or a higher mortgage (for which you'll be burning your receipts instead of hoarding them).
If you're really lucky
It's a myth that you can't get a "normal" mortgage if you're self-employed. High-street lenders are getting used to different working patterns. Barclays, for example, maintains that it does not treat self-employed applicants differently, because it assesses affordability. Provided you've been self-employed for two years (a pretty standard requirement), and you can show you can afford the mortgage you're applying for, Barclays claims you won't be tied to your net earnings. And don't get into such a tizz that you ignore the obvious: your bank.
Self-certification
If you need a big mortgage, it's not the end of the world. Some companies will lend on "self-certification" of income (you give a figure without having to prove it). There are catches. You'll need anything from 10-25% deposit, the interest rate will be higher and, as it is arranged through a broker, you might be signed up for other financial products - so the mortgage might end up costing more, though the paperwork might be less of a hassle.
Checks and balances
Some lenders might contact your accountant to check how long you've been self-employed; they might even ask if you can afford the mortgage. While they won't ask for bank statements or accounts, they'll be super-stringent on all other checks, so a bad credit rating will come back to haunt you. County-court fines should be paid off in full, ASAP - lenders are very sensitive about outstanding bills. Don't make up an unrealistic figure for your earnings. Calculate a reasonable loan, based on gross earnings, leaving out tax-deductible expenses such as travel and equipment. "Lenders aren't stupid," says Ray Boulger, at Charcol, one of the biggest independent mortgage brokers. "If you're a window cleaner claiming to earn £75,000, they're not likely to believe you."
Mum's the word
Getting a guarantor for the mortgage, such as your parents, is a nifty way around restrictions. But they'll have to trust you: if you don't pay up, they have to. And they must be financially secure: their income and mortgage are taken into account. Alternatively, get your folks to dish up the deposit. With a substantial down-payment (half the property's value, say), you can avoid some standard requirements, such as being self-employed for a minimum of one or two years.
Spouse rules
If your partner has a full-time job, you might be better off swallowing your pride and getting the mortgage in their name (even though both of you will be contributing), because they'll be able to borrow up to four times their gross salary, no questions asked.
Shop around
Wise up and get sassy. Start reading the personal finance pages in the newspaper, so you can keep abreast of what the best deals are or which companies have more mortgage funds. Shop around, or choose a reputable broker who can present the best options. Advice can be found at the online directory of brokers, banks and building societies, www.ukmortgagesguide.co.uk, and at www.smarteric.com, a support network for self-employed people. For details of independent financial advisers in your area, contact IFA Promotions, 020-7833 3131. If you're lucky, you will end up getting the best of both worlds - a cool tax bill and a hot mortgage, too.
An uphill struggle
Carol Cavanagh has given up trying to buy her own flat. Despite earning £40,000 a year managing office moves, Cavanagh, 32, has been refused mortgages by four different lenders - unless, that is, she pays a cash deposit of 20-25% (the normal rate is around 3-6%). She had hoped to buy a one-bedroom flat in East Putney, west London, for £140,000, and had saved £10,000 as a down-payment, but her plans were ruined when she was told she would need to increase this deposit to £40,000. (Ironically, when she was earning less, with no savings, but was not self-employed, one high-street building society had no hesitation offering her a mortgage on a deposit of 3% - apparently the decision took them all of half-an-hour.) There were two main difficulties: first, Cavanagh had been freelancing for just six months, and second, she tends to be booked only a couple of months in advance, which lenders deem too risky. Now, though, an increasingly friendly mortgage market, together with her understanding of how it operates, should make her path easier. 'I now know exactly what I'm up against,' she says. 'The situation can only get better.'
Kate Riordan
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