The Complete Guide To Self-Employed Remortgages

The pros and cons of product transfers

Your mortgage lender already knows a lot about you, so arranging a product transfer is straightforward.  

If the terms of your mortgage aren't changing, and you simply require a new mortgage, product transfers can offer several benefits:

• Processing times are quick. Usually just a week or two.
• There's minimal paperwork
• A property valuation isn't required
• You don't need to engage a solicitor or conveyancer
• The transfer can be arranged on the phone if necessary

However they also come with some downsides...

First, you may find yourself paying more for your mortgage overall than if you get a self-employed remortgage with another provider. Second, the abovementioned benefits only apply if you don't need to change the terms of the mortgage.

If you need to raise additional capital for home improvements or consolidate unsecured debts, adjust the mortgage duration, or amend the names of the people on the mortgage, you can still get a product transfer.  

Just be aware there will be more checks and paperwork involved. The lender will run an internal credit score check and a new property valuation may be required.

You'll need to carefully weigh up whether you're better off staying put by using a Product Transfer, or remortgaging elsewhere.

Unless you're simply borrowing extra funds through the current lender, there may also be legal costs. The good news is some remortgage products come with free legals.

Are there any pitfalls to be aware of when remortgaging?

Remortgaging can be a good option if your current mortgage deal is coming to an end and you want to:

• Save money on your mortgage payments
• Avoid being moved on to the lender's expensive SVR rate
• Raise extra funds for home improvements, or to finance a car etc
• Consolidate debts

Bear in mind, lenders self-employed remortgage applications based on the applicant's circumstances

• Credit history
• Evidence of income.
• How many years of accounts or trading history you have
• Outgoings, including ongoing commitments like school fees, car finance, credit card balances etc
• Personal circumstances. For example, if you've had any more children.

One scenario that can cause problems is with newly self-employed applicants. For example, if you were working in an employed role when the initial mortgage was taken out  but you've subsequently become self-employed.

If you havn't built up enough self-employed income, or trading history, you may not be able to remortgage.

Early Repayment Charges

If you switch mortgage providers before the end of your existing mortgage, most fixed or discounted mortgage deals penalise you through Early Repayment Charges (ERC).  This can potentially cost you thousands of pounds.

The ERC is designed to compensate the lender for the loss of business when you remortgage with another lender and redeem your current deal.

Whilst rare, some mortgage products even stipulate what's called an overhang period, where the ERC still applies even after the fixed or discount rate period has ended.

Check the overall cost including any mortgage product fees

Some remortgage deals come with product arrangement fees. Typically these fees range between £500 and £2000, although they can be added to the loan if necessary.  

Thankfully, competition is fierce in the mortgage market, some deals have no arrangement or product fee. SEMH can help you find the right lender and product for your circumstances, including no-fee mortgages.

Fixed vs variable rates

With the Bank of England base rate rising rapidly since December 2021, mortgage rates are much higher than they were.

Clearly, when rates were incredibly low, fixing for a few years was for many, a no-brainer decision. Now the decision is more nuanced and discount and tracker mortgages are worth considering.

But ultimately, the choice of product type depends on your circumstances, credit score and appetite for risk.

Discount and tracker mortgages are both variable rate products. Which means the interest rate you pay can fluctuate.

Discount mortgages are discounted to the lender's Standard Variable Rate (SVR), whilst tracker rates track the Bank of England base rate.

Speak to a mortgage adviser at SEMH if you need advice or would like a remortgage quote. We have access to thousands of mortgage products, including many from self-employed friendly niche lenders.

Not only that, we always source the most cost-effective deal for your circumstances, pound-for-pound, after accounting for any fees and or cashback associated with the product.

Will I need a solicitor?

If you're remortgaging with a new lender, yes.  Fortunately, some lenders have free legals and will engage a conveyancing solicitor or licensed conveyancer at their expense to carry out the legal work.

Others will charge, or allow you to instruct a solicitor, as long as they are on the lender's panel.

How much can a self-employed person borrow?

It very much depends on your circumstances. Some providers, regardless of your income will only lend a maximum of 4.5 x single or joint income if any applicant is self-employed.

Other lenders are prepared to lend at higher multiples of income for higher earners.

With these providers, single applicants earning from around £75,000 p.a or joint applicants with a combined income of £100,000+ can potentially borrow between 5 and 6 times their earnings.

If you're a limited company director with at least 50% shareholding or a sole trader, it's possible to find lenders who will use net profit, plus directors remuneration (salary) to assess income for affordability, rather than dividends and salary.

Many will average the total income over the past two years of accounts, but some providers accept the latest years figures, which can be beneficial if profits are on the rise.

A couple of lenders even consider your income based on salary plus pre-tax profit instead of post-tax net profit, but average over the last two year's figures.

Either way, lenders will want to be satisfied the increased profits are sustainable and not down to one-off factors. In some cases, they may ask your accountant for current trading year management accounts or an accountants certificate.

To find out how to evidence your business profits and personal income, see our documentation guide for self employed mortgages.

How long do you have to wait before remortgaging?

To remortgage, it's usually a requirement that you've owned the property for a minimum of six months first.  Strictly speaking, it's 6 months from when your details are added to the title deeds at the Land Registry.  

However, the Registry will often backdate your entry to the purchase completion date. In any event, some providers are happy to lend before you're added to the title deeds.

How long does a remortgage take to process?

Around 2 - 8 weeks is typical, so it's important to give yoursel enought time to remortgage to avoid moving onto your existing lender's SVR.

Much depends on how busy the lender is when you apply. Completion times tend to be longer from May to July, the busiest period for property transactions.  

For guidance on the lender's service levels at the time of your mortgage application, please speak to your mortgage broker.

Day One Remortgages

It's possible to remortgage without waiting the usual 6 months period, with a so-called 'Day One' remortgage.

This is just a catch-all name given to any borrower who wants to remortgage immediately upon purchase, or at least without waiting 6 months.  This market tends to be served by specialist lenders.

Day One remortgages are used for a variety of scenarios, including auction purchases, and inherited properties.

What's the maximum LTV for a remortgage?

The current maximum LTV is 90% LTV for residential house purchases. For flats, maisonettes, and other types of leasehold property, 85% LTV is typically the upper limit, though some lenders will only go up to 75-80%.

It's also possible to remortgage when you're self-employed on an interest-only basis, though you'll likely need 25-50 per cent equity.

What can I use additional borrowing for?

When you release equity in your property, you can usually use the extra cash however you want, including to:

• Make home improvements, including extensions
• Purchase a car
• Pay for a holiday
• To buy or invest in a business
• Settle a divorce agreement
• Use as a deposit to purchase another property
• Fund school fees

Nonetheless, lenders still need to know what you want the money for, because it will have a bearing on how much you can borrow.

For example, most banks and building societies will cap their maximum loan-to-value (LTV) at around 80% if you want to remortgage to consolidate personal debts. For most other uses, higher LTVs up to 90% are possible.

Bear in mind you may be required to evidence the extra borrowing has been spent on it's declared purpose.

Can I remortgage to remove my partner?

Yes, although you can't simply remove an ex-partner from the mortgage without their consent.  

But if you've split from your hubby or partner, remortgaging your home as part of a separation or divorce settlement is possible, provided you can pass the lender's affordability assessment on your own.

Just like with any mortgage application, your self-employment income, outgoings, credit history and personal circumstances will all be scrutinized.

The equity from your property also plays a large part in determining the rates available to you. Lenders offer the best remortgage deals to applicants borrowing 60% or less of their property value.

Can I remortgage with bad credit?

Yes, many lenders are willing to consider self-employed applicants with poor credit.

High street banks and building societies tend to be more cautious than specialist lenders and often only lend to a self-employed applicant with mild adverse, such as low value defaults and CCJs.

The interest rate you get depends on not just the severity of adverse credit, but how long ago it occurred. But in the right circumstances, it's still possible to remortgage, even if you've been subject to an ex-bankruptcy, IVA or repossession.

Getting a remortgage quote

To obtain the best deal for your circumstances, a specialist self-employed mortgage broker at SEMH can save you time, stress and potentially thousands of pounds.

We have access to a huge range of remortgage deals from mainstream and niche lenders offering a range of competitive interest rates and deals.

To get a fast, no-obligation quote, speak to a mortgage adviser on 0117 205 0655 (Monday - Friday 9am - 5pm) or book a free consultation here.