Until the tightening up of underwriting, since the start of the recession, financial products such as secured loans, mortgages and remortgages were just as available to the self employed as to the employed. The fact was, that in some cases, as regards, for example, income requirements, the self employed were at an advantage, and in other aspects they were equal to those in employment. There are a number of factors that lenders take into account when granting home loans, and the first of these is the equity available in a property. Equity is the main factor by dint of the fact that secured loans, remortgages and mortgages are all types of homeowner loans that must be secured on equity, which is the difference between the property value and the mortgage balance. Those with more equity can obtain a better rate of interest. Before the recession, employed applicants could obtain secured loans, mortgages and remortgages at up to 125% of equity, meaning that these financial products were available at 25% more than the value of the property.
This 125% equity plan was only available to employed applicants, but none the less, the self employed were also well catered for as they could obtain a secured loan, a mortgage or a remortgage at up to 100% LTV.This did not place them in too much of an inferior position as regards equity. The second most important determining factor in being accepted for any of these three home loans, is the status of the applicant, with high credit scoring applicants being in a position to obtain a lower rate of interest than those with a poor credit rating. The same credit profile was accepted for both people in employment and those who were self employed. The third important feature for obtaining homeowner loans, remortgages and mortgages is the income requirements, and in this the self employed used to have the edge. This advantage of the self employed over the employed was due to the fact that lenders take a certain percentage of income when considering applications, and prior to the credit crunch the self employed could self cert their own income. A self certification is the declaring of income without providing accounts, an accountant’s reference or any other type of official proof.
Some self certs were inflated, with the borrower overstating their net profit, to make certain that their income would lead to approval for self employed loans, remortgages, etc.The employed on the other hand, could not do this, and had to provide wage slips showing their actual salary.Self employed people gained over the employed in the income stakes, and only ranked behind a little regarding the equity in their property.Changes to the position of the self employed requiring a home loan altered, and many of these self employed were really struggling to obtain any kind of a loan.