Have you ever fancied the idea of being your own boss? People who are self-employed usually have more control of their own time which means they have more freedom on how they structure their day.
While this is a benefit many people may want for themselves, there are some drawbacks when you are self-employed when you apply for a mortgage.
A new report from Kensington exposed that around 3.5 million or 24 per cent of self-employed UK residents have been refused a new mortgage by the big lenders. Another 1 in 10 UK residents have also been turned down by all mortgage providers.
This news is alarming, since the volume of people choosing self-employment as a way of making a living has ballooned to 4.6 million or 15 per cent of the workforce.
While 30 per cent of the UK population or 15 million adults have been self-employed for at least 12 months at some point of their lives. According to the statistics, men are more likely to venture into self-employment than women, and people living in Scotland have the highest chance to enter into self-employment.
Kensington further added in their study that by 2054 self-employed people would take account for 30 per cent of UK’s entire workforce.
The problem for self employed is that when they apply for a mortgage, their details are input into a computer which goes through a checklist to determine whether a borrower is low risk or high risk. Unfortunately, being self-employed is considered “high risk” compared to having a 9-5 job with a fixed income. That is why it is harder to get home loan approvals when you are self-employed.
Having mentioned that, does it mean that, if you are self-employed, you will forever struggle to buy your own home? The answer I give is “no” because you don’t have to be at the mercy of the system.
I always tell my students that there is more than just one way of doing things.
Most people follow the standard. They do this because they find nothing wrong with it. But there are some people who always think that there must be a better and more efficient way of doing things.
Take, for example, Steve Jobs and Apple. Before they introduced the iPod in 2001, people had to lug around bulky cd or cassette players just to get their music on the go. After they launched the product, they completely changed the way people played and enjoy their music, as well paved the way for the development of mobile technology.
The same concept can be applied when buying houses. Getting bank finance is the standard when buying a house. However, due to shifts in the economy such as inflation, increasing cost of living and changing work environments to name a few, there are times when bank financing becomes a very inefficient way to purchase property. So if it doesn’t work for your situation, there is an alternative solution you can look into.
In times when people can’t depend on the bank to give them a new mortgage, it’s possible for people to turn to seller financing strategies so they can resurrect their dream of becoming a homeowner.
Here’s an idea of how seller finance works. Rather than take out a new bank loan, a buyer may negotiate to assume the existing loan left in the property and pay the remaining equity in instalments. By doing so, a buyer may be able to minimise upfront costs and side-step the usual hurdles faced when taking out a new bank loan. The seller, on the other hand, will be able to move away from unwanted debt immediately and create passive income at the same time. It’s a win-win for both parties.
But this is just one example of seller finance. The beauty of this strategy is that terms can always be adjusted based on specific situations that the buyer and the seller are facing. It’s this type of flexibility that makes it an attractive alternative for self-employed people who are getting overlooked by lenders.
http://www.rickotton.co.uk/alternative-solutions-for-self-employed-homebuyers-rick-otton-analysis
