As a self-employed entertainer, it can be quite difficult to know where to start when looking to buy a property. Below are hopefully a few useful tips for you to consider when you decide to take the plunge and raise your foot onto the first rung of the property ladder and apply for a mortgage.
Start saving early
Firstly, be honest with yourself about what you can afford per month. Have a savings account you can move money into whenever you have it to spare.
It is usually a good idea to save at least 10% of the property value as a deposit (although it is possible, albeit more expensive, if you have less than that).
Remember that it is not just the deposit you’ll need to save for. Extra expenses to bear in mind are things like stamp duty, survey/solicitor’s fees and insurances, which vary depending on the property.
Get your accounts in order
As standard, you will need at least two years’ worth of tax returns and income records. Between your accountant and financial adviser, they should be able to help with these tricky bits if you don’t want to handle them yourself.
Prepare your documents
You will need proof of ID and address and some proof of income to get your mortgage. Mortgage providers usually require bank statements covering the previous three months and your accounts for the previous two to three years or tax documents, known as SA302s, are accepted as proof of income. It can take up to 2 weeks to receive original SA302 forms so request them early from your accountant.
Generally, most lenders will look at lending somewhere between 4 and 5 times your earnings however the figure they will borrow will also depend on various factors i.e. credit score, how much you spend on food, bills and leisure activities as well as details of any outstanding debts.
Stability of income
It must be remembered that banks are looking for stability, secure future business and proof you are a steady earner.
If your earnings have dropped slightly in the past year, the underwriters will seek to understand why this is and may request projections from your accountant that earnings will rise again.
If the earnings have significantly dropped, then this may be an issue with a lot of lenders due to a lack of stability of income. However, as every borrower has different circumstances and the fact that there are specialist lenders out there who will bear in mind your vocation, then this shouldn’t be considered a major stumbling block by default.
Keep an eye on your credit score
Your credit score is one of a number of ways lenders will assess your application because banks want to ensure you can be relied on to meet your mortgage repayments. Websites like Experian and Equifax are useful for checking your score and boosting your rating. Simple things like making sure you’re on the electoral roll will help the bank to verify your ID and credit rating faster.
Stay positive
It is not necessarily harder to get a mortgage if you are self-employed. As long as your income is consistent, or increasing, year-on-year, there’s little difference. Lenders assess each case on its merits so self-employed people shouldn’t feel that they are in any worse position than someone who perhaps has a more regular income.
Thinking of going Limited?
Even though there may tax advantages to incorporation, make sure that you do not switch over until you understand that mortgage lenders will view this as a new vocation (even if what you do does not change).
Risks
No one can predict the future so it is important to be aware that as well as not be able to guarantee future success (which is usually correlated to your income), factors such as interest rate rises and the strength of the property market need to be monitored. As no two people’s circumstances are the same and the fact that it is key for borrowers to know what paperwork different lenders will accept, it is very important that you seek the guidance of an experienced Independent Financial Planner who will be able to guide you based on your specific requirements.
Christian Wynne
Financial Consultant for Creative People