July Newsletter - How to buy a home if you're self-employed

In this month's edition, we start off with a detailed guide for self-employed or freelance house hunters who are looking to purchase a home.

We also detail what the term 'gazumping' means when it comes to property, we reveal which property type possesses the best rental yield and finally, findings suggest that nearly half of over-55s would consider downsizing in order to fund a jet-setting lifestyle. 

How to buy a home if you're self-employed

 

With 4.8 million people across the UK who are registered as self-employed, it may come as a surprise that many who run their own business or work freelance still view their chances of obtaining a mortgage as overly difficult. However, if you’re thinking of buying this year and you are self-employed, then there are a few things that you can do to maximise your chances of being approved for a mortgage.

Pre-2007, when the so-called 'credit crunch' hit the UK market, those who were self-employed and looking to obtain a mortgage would do so via a self-certification mortgage. These loans required very little paperwork in terms of proving income, however, and led to an abuse of the system with applicants over-stating their income in order to gain a larger loan amount. Due to this practice, these mortgage variants were banned and those looking for a mortgage application through the same routes as others who aren’t independently employed.

These days, if you are self-employed and looking for a mortgage, then the application process is the same as if you were employed externally, but there are some steps you can make to improve your chances:

An accountant will help you to get all of your finances together and will also be able to offer the best advice in terms of balancing the tax that you pay and the status of the business; some people who are self-employed pay themselves less in order to lessen their tax, but be advised that this may harm your mortgage application.

The structure of your business will also have a bearing upon the success of your mortgage application – so think about whether it will pay dividends in the long run to change from being a sole trader, to a partnership or limited company. Do keep in mind that the finance structure of your company will also be taken into account – for example, Director’s Loans (money that you have put into your business) will not be classed as income. The only considerations for a mortgage application are a declared salary and dividends paid out.

Being organised is, of course, tacit for anybody applying for a mortgage, but if you are self-employed then this becomes even more important. Depending on how long you have been self-employed for, you will have to be able to provide at least two years' worth of accounts. If you haven’t been in business for that long, then providing a strong previous employment history is an absolute must to prove that you are a safe place for a lender to give a mortgage to.

The fundamentals of mortgage application remain the same for whether you are self-employed or not. Maintain a strong credit history, and if you have blemishes on your record then work on improving these before you set about your application for a mortgage. Shopping around is also a must – different lenders will be able to offer you different mortgage structures, one of which may fit you best, so don’t be tempted to just say yes to your first mortgage approval. Finally, having a sizeable deposit will impact the rates which you end up paying on your mortgage, therefore waiting until you have a larger deposit to be able to put down on a property may be worthwhile in the long run.

Nearly half of over-55s would downsize to fund their jetsetting

 

With more people living longer and ageing with much better health than ever before, those aged 55 and over are playing a key part in the national economy. Recent research from SunLife has surveyed this age group and found that nearly half would sell up in order to fund a more jet-set lifestyle.

Recent data from the Office of National Statistics has shown that the proportion of those aged 65 and over will rise by 5% over the next thirty years, with greater economic contributions coming from this group as the years progress. For those currently 55 and over, SunLife questioned 1,000 homeowners with a big choice; if they had the option between staying in their family home but never holidaying away from the UK again, or downsizing and then using the cash for foreign holidays which would they choose?

Interestingly, nearly 50% said that they would downsize (44%) in order to enjoy a jet-set lifestyle in their later years – what this does suggest, however, is that 56% would not be prepared to sell their family home. The research has shown that as we get older, the more attached we become to our properties; with those in the 65-80 group voting overwhelmingly to keep their property at the expense of not holidaying again.

Of course, as we get older the inclination to travel could decline as we may be less mobile or find the appeal of travelling for long periods less attractive than in our younger years, which could explain the growing desire to stay-put as we age.

Simon Stanney, equity release director at SunLife said: “Our Home Sentiment research shows that foreign holidays are clearly very important to over 55s, with 44% prepared to downsize in order to be able to go on holiday abroad.

But equally, we can see people are really tied to their homes because even when money isn't an issue, many would choose to stay where they are. It is clearly a tough choice, but maybe it is one over 55s don’t have to make. Equity release allows homeowners over 55 to release some of the value from their home without having to move. The money released can be spent on anything they like – including holidays.”

As Stanney indicates, equity release is being utilised by many people and with attractive rates available in the lending marketplace, remortgaging is proving to be extremely popular.

What is 'gazumping' and how can I avoid it?

 

If you’re looking for a new home, or are looking for your first home, then “gazumping” may be a term that you aren’t particularly familiar with. Essentially, gazumping is when you have had an offer accepted by a seller, and are in the midst of the buying process, when another buyer comes along and offers a higher price, effectively stealing (or gazumping) the sale.

Over the period between January 2016 and October 2018, analysis by TwentyCi found that 16% of buyers were gazumped. In the current property market, where demand for properties is high, gazumping continues to be prevalent, and the research found that Sheffield is the area with the highest level – with 35% of buyers out-bid at the last moment.

Phil Spencer, TV presenter and co-founder of Move iQ, said: “For anyone who thought gazumping vanished with the runaway price rises of a few years ago, our findings will come as a reality check.

“Gazumping is alive and well, and still causing heartache for tens of thousands of buyers across England and Wales.

“Britain’s fragmented property market is throwing up huge regional extremes. In hotspots where prices are still rising fast, sellers can be tempted to go back on their word to a buyer if they get a better offer elsewhere.

“Meanwhile, in slow markets, the lack of homes for sale can lead sellers to leave would-be buyers in the lurch if they get a last-minute offer from someone else.

If you want to avoid the spectre of being gazumped, then having all of your buying processes in place before making an offer will help. These involve having a mortgage in principle in place, a conveyancing solicitor and a surveyor in mind; all will help to avoid long periods of waiting which offer the opportunity to others to make a higher offer. When you make your offer on a property, you could also ask as a condition of the offer that the property be taken off the market immediately which will then protect you from other prospective offers.

Britain’s Gazumping Hotspots
1. Sheffield – 35%
2. Madistone – 32%
3. Cambridge – 28%
4. Birmingham – 26%
5. Manchester – 25%

Which property type boasts the best rental yield?

 

With rents increasing by 1.3% on an annual basis in May, it is clear that there is plenty of room for solid returns in the lettings market. If you are thinking of investing in a rental property, or you are a portfolio landlord looking to increase your selection of properties, then a key factor will be the potential yield that the property could return. Read on to look at our breakdown of properties and potential rental yields, and if you need any further advice then please feel free to contact us.

In terms of rental yields, Houses of Multiple Occupancy (or HMOs) are becoming ever more popular as investment properties and are widely viewed as the future of the rental market. HMOs were in previous years solely a staple of the student lettings market; however, this is now changing, and young professionals are now part of a growing tenant population favouring this rental configuration. For landlords, the mathematics is simple; multiple tenancies operating independently in one property increases rental yield significantly and means that void periods are far less of a problem.

According to the National Landlords Association, average rental yields sit at 6.9% for HMOs, some 1.3% higher than other properties. However, there are other considerations if you are thinking of buying a property with a view to let it out to multiple independent occupants; bedroom sizes must be at least 6.51 square metres and some HMOs will require a license, obtainable from the local council.

Properties in city centres are proving to be extremely popular and demand is rife for centrally located homes on the rental market. With that in mind, purchasing a flat or apartment could prove to be a shrewd move if you are looking to maximise your rental yield potential; with competition amongst renters keeping the prices of well-located properties high and avoiding those dreaded void periods of non-occupancy.

Houses with two bedrooms or more are by far and away the most popular choice amongst renters, whether they are detached, semi-detached or terraced. With the average age of the first-time buyer now at 30, more and more families are renting up until this point, so multiple bedrooms are a must. Appealing to this family and young professional market will help you to achieve your desired rental values and could potentially secure you longer tenancies with tenants willing to sign up to three-year contracts.

Fundamentally, there is no one single property which is guaranteed to give you a specific rental yield. Investing in property remains one of the most stable investment classes, and despite periods of ups and downs, in the long term it is difficult to find a more lucrative venture.