Bad Credit Self-Employed Mortgage

The more evidence of reliable income you are able to provide as a freelancer the better, especially if you're dealing with the double issue of also having bad credit. Keep in mind all the time that a lender wants to be reassured, so as well as providing evidence of previous income, it could be useful to show them work that you already have in place for the future. Any agreed contracts that are in place that show that work is going well could come in handy.

Typically lenders will want to see three year’s worth of income evidence for a self-employed mortgage. This could be self-employed accounts if you have them, but if you don’t produce accounts and do your own self-assessment tax returns then it would be copies of your SA302 tax calculation. You can download copies of these from the government website by logging in to your self-assessment portal.

If you don’t have three years of accounts or tax records because you’ve become self-employed more recently than this, this is going to make it harder for you to get a mortgage on top of the bad credit. That’s not to say it’s impossible, as there are lenders who are sympathetic to newly self-employed people, it will just limit your options further. It will help your case if you are freelancing in an industry that you used to be employed in and so can demonstrate relevant skills and experience. For example, if you’ve worked in IT for ten years and have become a freelance IT consultant, you will be seen as a safer bet than if you’ve given up IT to launch yourself as a newly qualified sport masseuse.

Many people assume that lenders simply look at a credit score, and that a score below a certain level will be an automatic no on a mortgage, but that’s not how mortgages work in the UK. Although you may see a score when you log in to your own credit reports, these are really for your benefit, to give you an easy overview of your creditworthiness and to allow you to easily track improvements. Lenders won’t see those scores in the same way - they will usually look at the full credit report and use their own scoring system and attitude to risk to assess your application.

Although it’s true that there will be many lenders who do automatically decline mortgage applications because of certain credit issues, there are plenty of more specialist lenders who will take each application on its own merits, and look more carefully at the context of the credit issue. They may also give you the opportunity to explain why it occurred and to tell them why you think it won’t happen again.

Generally lenders will be assessing any bad credit on several different criteria:

• Its severity - bad credit issues can range from something as simple as a single late payment to much more serious issues such as defaults, country court judgements, (CCJs), debt management plans and IVAs. Each lender will have different policies for each type of bad credit, so getting a mortgage after bankruptcy will be different to getting a mortgage after a late payment.
• How long ago it occurred - this is one of the most significant factors, and can often mean the difference between a yes and a no. Many lenders will be tolerant of the majority of issues that occurred over six years ago, but if you’ve had a significant credit issue between 3 and 6 years ago, you may find yourself with a much smaller number of options. Reduce the time elapsed to less than 3 years and you hit a tipping point where many lenders won’t be interested.
• The frequency of issues - a single missed payment is likely to have far less of an impact than a series of missed or late payments over time. A one off incident could be explainable, and is much easier to forgive that something that comes across as consistent poor financial management.
• The amounts involved - as you might imagine, lenders will be more tolerant of credit issues involving small amounts than debts spiralling into thousands of pounds. Many lenders will impose set limits on the amount of debt they are prepared to accept as CCJs or defaults for example, and if you exceed this then your application will be turned down.

This is a difficult one to answer as so much depends on the specifics of your circumstances. It’s fair to say that generally speaking, lenders do prefer you to have a higher deposit if there is a higher level of risk is your application, so if you’re applying for a mortgage as a freelancer and have bad credit, it’s not unreasonable to expect that many lenders might set lower maximum loan-to-values.

Having said that, if you’re looking for a bad credit self-employed mortgage then you may well already be going down the road of a specialist bad credit lender, and they can be more flexible about creating a mortgage to suit you. The bigger a deposit you can save the better, but if you have a low deposit then there could still be a mortgage for you.

Yes, this is very likely. With not one but two risk factors to mitigate, lenders will very likely offer you a higher interest rate than if you were in regular employment and had a perfect credit score. A higher interest rate will mean higher monthly repayments, so it's important to be realistic about what you can afford and to make sure you feel confident about your ability to commit to the mortgage on a self-employed income.

Keep in mind that you probably won't have to accept premium rates forever. Although you may initially want to tie into a fixed rate period - probably 2-3 years, once you reach the end of this you’ll have the option to remortgage to another deal. By this point you’ll have a longer self-employment history, your credit ma have improved and you’ll have built up more equity in your home, so you should be able to access more competitive rates.

This depends on your circumstances and the type of credit issues you’ve had in the past. Although a guarantor mortgage can be useful if you really can’t get a mortgage on your own, they don’t come with risks. Whoever you choose as your guarantor will normally need to be a homeowner themselves, as the mortgage will be secured against their property. This means that if you default on your mortgage, their home could be at risk as well as yours, so it’s not something to be entered into lightly.

Yes, it’s definitely worth finding a broker who specialises in more complex mortgages to help guide you through your application. Ideally you want to work with someone who has experience securing self-employed bad credit mortgages, so you can be sure they have a thorough understanding of your situation.

Be honest with them from the start about your credit issues - it’s only with a complete picture that they will be able to find the right lender for you. If you try to cover up your bad credit, you risk having it come to light further down the line and having your mortgage declined, which can impact your credit score even further.

A broker can also talk you through deposit requirements, what documentation you’ll need to support your application and advise you on when a more niche mortgage option such as a guarantor mortgage might be a good idea. Most importantly perhaps, they will do all the work of researching and comparing mortgages, finding you the best rates and the best terms, so that you don’t end up paying over the odds on your loan. EVen seemingly small differences in rates can have a big impact on the lifetime cost of a mortgage so it’s worth shopping around for the very best deal you can find.