Kent Reliance has provided a boost for self-employed borrowers by easing its mortgage lending criteria.
The lender, which only offers mortgages through brokers, has cut the amount of trading history it will consider from three years to just one.
This will make it easier for newly self-employed individuals looking for a mortgage, but are the rates any good?
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How it works
Most lenders require a two or three-year track record of self-employed earnings. So even if you have a perfect credit history, you could be turned away if you don’t have a two or three-year trading record.
Instead, Kent Reliance, which only offers mortgages through brokers, will now consider self-employed borrowers with just 12 months of income based on finalised accounts from an accountant.
The accountant must also provide a second year income projection and the applicant must also show three months of personal and business bank statements.
Mortgages will be provided on rates up to 85 percent loan-to-value.
Easier criteria: Kent Reliance will now consider self-employed borrowers with just 12 months of income
How it stacks up
The criteria is certainly more flexible than that of other lenders, but the rates Kent Reliance offers are quite high compared with what the general market offers.
For example, the two-year fixed rate for a 15 per cent deposit is 4.19 per cent, with a 0.5 per cent product charge and £150 application fee with Kent Reliance.
A 25-year £150,000 mortgage would cost £807 a month and £20,031 over two years.
That is a lot when compared to the current lowest rate on the market at 85 per cent LTV, which is 1.84 per cent from Chelsea Building Society with a £1,675 fee.
A 25-year £150,000 mortgage would cost £624 a month and £16,654 over two-years. That’s £3,377 more than the Kent Reliance offer.
Obviously you may find it harder to get this low-rate deal on a self-employed basis.
Chelsea BS typically requires three years trading history from self-employed applicants.
David Hollingworth, of mortgage broker London & Country, said: ‘You won’t generally see Kent Reliance competing at the top of the tables on mainstream products but the same could be said of lenders such as Precise and Kensington, which can consider self-employed applicants with only 12 months trading under their belt.
‘Kent Reliance is targeting its approach more narrowly at professional applicants but again recognises that lending conditions can be tougher for those without the typical two to three years of accounts that many lenders will insist upon.
‘Many self-employed can of course take advantage of the mainstream rates on offer from standard lenders but if they find themselves with too little trading history these lenders offer an alternative route to securing a mortgage.’
WHAT BUSINESS OWNERS NEED WHEN APPLYING FOR A MORTGAGE
Mortgage lenders apply different rules depending on whether you are self-employed, a partner, or director of a limited company.
A lender will typically class you as self-employed if you own more than a particular percentage of a business – usually 20 per cent or 25 per cent.
If you are classed as self-employed then you will need to prove the income that you are declaring. This can be done by supplying the accounts of your business or an accountant’s reference, which usually need to be prepared by a qualified accountant.
The standard requirement from a lender is to see two or three years’ proof of income, although a few may accept as little as one year in certain circumstances.
You will be assessed on profits and lenders may want proof that you’ll earn similar sums in the years ahead by asking about your business and what contracts or clients you have lined up.
If you do your taxes by self-assessment and get the Revenue to calculate it for you, you may get a form called an SA302, which shows the total income received and total tax due.
Remember, even if you are permanently employed with tax deducted by your employer, if you have additional income, this may be classed as self-employed income. If so, it is likely to be treated in the same way as income from someone who is 100 per cent self employed.
Most lenders will treat partners in a business in much the same way as self-employed borrowers. They will typically look at your share of net profit when calculating how much you can borrow.
Directors of limited companies
If you’re a director of a limited company then your total income may be made up of a combination of basic salary and dividend payments. Lenders will usually consider both these elements of your income, although exactly how they treat it can depend on your share of ownership.