Homeowner Loans For Self-Employed Borrowers

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ABC FinanceHomeowner LoansSelf-employed
Gary Hemming

Author: Gary Hemming CeMAP CeFA CeRGI CSP

20+ years experience in homeowner loans

Homeowner loans allow self-employed borrowers to release funds by securing a loan against the equity in their property.

When you’re your own boss, it may be harder to get a loan and proving your income can be more complex. Homeowner loans are a great option for self-employed borrowers who are looking to raise finance against the equity in their home.

What is a homeowner loan?

A homeowner loan is a sum of money borrowed from a professional financial body, repaid in instalments (plus interest) each month. This loan will be secured against your home. If you fail to make your contracted repayments, your lender can force you to sell your house and settle your outstanding debt using the equity.

Discuss your options with a broker if you are considering taking out a homeowner loan. While a handful of homeowner loans are available to the general public, some lenders will only deal with financial professionals.

By enlisting the services of a broker like ABC Finance, you’ll receive expert advice on your affordability and enjoy access to a range of lenders – all of whom are governed by the Financial Conduct Authority – that offer preferential interest rates on a self-employed person’s homeowner loan.

Can self-employed people get a homeowner loan?

Yes, your self-employed status will not exclude you from taking out a homeowner loan. Arguably, you have already completed the most arduous task by obtaining a mortgage in the first place. However, you may face a few more questions than somebody that has a full-time salaried role.

Your lender will seek assurance that you can keep up with the repayments by seeing evidence of a consistent and reliable income. You may also need to prove to your mortgage lender that you will not be placing their investment at risk by placing your home up as collateral.

If you have been self-employed for at least two or three years and have built a reliable client base and income source, you should not struggle to gain a homeowner loan as a self-employed person.

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What can a self-employed homeowner loan be used for?

S As a self-employed person, you can use your secured loan for the same needs as anybody else. Popular reasons for people to take out a self-employed homeowner loan include:

  • Structural repairs or improvements to a property
  • Substantial one-off purchases, such as a dream holiday or a new car
  • Paying for a wedding or other expensive event
  • A down payment on a second home or a business premises
  • Consolidating debts into one manageable, theoretically lower, monthly repayment

As a self-employed person, you may also want to use your self-employed homeowner loan to support your business endeavours. You could use the funds to expand your company interests, purchase new equipment, or cover salaries during a down period in trading. Just remember that you are literally betting your house on your business. If things do not improve at work, you are placing your personal property at risk. 

Another thing to note is that many lenders will not agree to a homeowner loan designed to pay a tax bill. If you have fallen behind and HMRC is chasing you, you’ll need to find another way to settle your debt.

What interest rates can I expect to pay?

The interest rates applied to a homeowner loan are typically lower than those associated with unsecured counterparts. This is because homeowner loans are considered lower risk. Borrowers are less likely to default on a loan when it could cost them their house.

There is no single flat rate assigned to homeowner loans, whether you are self-employed or salaried. Interest rates range from 6% to 9%. Your homeowner loan broker will find you the best interest rate available for your unique circumstances.

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Can I get a self-employed homeowner loan if I have bad credit?

Yes, you can theoretically still get a self-employed homeowner loan if you have an imperfect credit history. The fact that your property is placed against the loan as collateral gives the lender a little more security.

Not every lender will be comfortable dealing with clients with bad credit. Specialist lenders will be a little more flexible and forgiving of historical financial problems when taking out a self-employed homeowner loan. Your previous issues may lead to a higher interest rate on your loan.

There is nothing to gain by trying to hide your credit issues in the past – lenders will discover them, and if you are considered to have been dishonest, it will reflect poorly on your application. Be upfront, prepared to explain why you ran into trouble in the past – and why you are confident it will not happen again.

 As you may need the services of a specialist lender to gain a homeowner loan with a poor credit history, it’s more important than ever that you apply through a broker.

How much can I borrow?

How much you can borrow as part of a self-employed homeowner loan depends upon your personal circumstances. Examples of this include:

  • The reliability of your income and how much money you are bringing in each month
  • The level of equity in your home. Some lenders will allow you to borrow as much as 95% of your equity, while others cap the sum at closer to 70%
  • Your credit rating. As discussed, bad credit will not necessarily preclude you from gaining a homeowner loan, but the higher the risk attached to your borrowing, the more limits will be applied

Discuss how much you are looking to borrow with your broker, ensuring you can comfortably afford the repayments.

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What is the maximum term for a self-employed homeowner loan?

Most homeowner loans can run for as long as 25, even 30 years. This depends on your age, though. If you are 50 or over, a lender is likelier to offer a shorter repayment term to ensure your arrangement avoids stretching into your retirement years.

How soon could I get my loan?

It will typically take two to three weeks to receive the funds you apply for as part of your homeowner loan. That is based on the process unfolding without difficulty. Be mindful to avoid any delays in your application by providing all the information you are asked for and promptly responding to any queries your lender poses.

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What information do I need to provide?

Upon applying for a homeowner loan, your lender will ask you for various documents. Ensure you provide everything you are asked for, as failing to do so will delay your application. Typically, you will be asked for the following.

  • Evidence of your income. As a self-employed person, this will be the most detailed element of the process. You’ll need to provide tax returns, bank statements, expenses reports related to your business … basically, you need to prove that your incomings exceed your expenditure so you will not struggle to make repayments
  • Proof of your ID, usually a passport and/or your driver’s license
  • Proof of your address in the form of a recent utility bill or credit card bill
  • Your latest mortgage statement, confirming how many repayments remain on your arrangement and the equity in your property

You will also need permission from your mortgage lender to take out a homeowner loan, as you will be placing the mortgage company’s asset at risk. A lender offering a homeowner loan will either want a written letter from your mortgage lender providing this consent, or the details of your agreement so the lender can discuss your application.

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