Property: Better ways home if you have no boss

While lenders are falling over themselves to help most home-buyers, things are not quite as inviting for the self-employed. But all is not lost for them, as Rachel Fixsen reports.

While many employees with a solid employment history can satisfy lenders that they present a reasonable risk by producing three months' worth of pay slips, people working for themselves are normally asked to provide three years' audited accounts.

It is not only the self-employed who have problems getting a mortgage. Anyone who works on a fixed-term contract or through an agency might hit snags.

Earlier this year Theo Nicholaou, a doctor at a London hospital, had an offer accepted on a flat and successfully applied for a pounds 110,000 mortgage from the Woolwich. But he was subsequently gazumped. By the time he found another flat and reapplied for the mortgage, he had switched from working for the NHS to being employed through two medical staff agencies.

Even though his income had increased through the change in employment status, his mortgage application was turned down. This was because the underwriter of the mortgage indemnity guarantee (MIG) would not take on the risk. Most lenders advancing more than 75 percent of a property's value require a MIG - insurance which pays out if you default.

"I ended up going back to my bank, NatWest, even though there were lots of cheaper options," he says.

Getting a mortgage from your bank is often the best option if you have a non-mainstream employment status, says Liz Neild, of Barclays Mortgages. "It means it's going to be a lot more straightforward," she says. "They've got a lot of information in their data systems about that person."

The mortgage advisers John Charcol often advise self-employed people to turn to their own bank. "Even if their bank hasn't got the best deals, they're in a position to take a longer term view," says Ray Bolger, consultant at John Charcol.

When Paul Nixon, a computer consultant in Birmingham, was in the process of buying a new home last year, he turned to Abbey National, with which he had had a mortgage for five years. Because he had become self-employed, the bank demanded a lot of paperwork.

"I'd never really been questioned like that before, and I wasn't exactly thrilled," he says. He then turned to Barclays where he had banked for years, and was granted a mortgage of 95 per cent of the property's value without having to produce all the accounts required by Abbey National.

The self-employed seeking a mortgage usually have two options. Either they go for a "status loan", which could be for up to 100 per cent loan to value, and give two to three years' audited accounts or tax statements.

Or they put up a large deposit, and borrow 75 per cent or less loan to value. In that case, they can take the self-certification route, which means they do not have to give proof of income. The usual credit checks are carried out. They may include a current or previous lender's reference and a bank reference.

Many self-employed people simply do not have three years' audited accounts. Paying an accountant to prepare the books may seem an unjustifiable expense. Or the business may not have been around that long.

Even where accounts have been audited, they often provide an inaccurate picture of what level of mortgage the would-be borrower can afford. Many expenses can be written off against tax, effectively shrinking the business's profits and therefore the amount a lender will grant. However some of those costs would be there anyway, such as the use of space in the home to run the business.

So if you work for yourself, the easiest way to get a mortgage is to put up at least a quarter of the property price yourself. This cuts out the need for a MIG. And regardless of whether the lender believes you will be able to repay the loan, it has the reassurance that it would - unless house prices fall by more than 25 per cent - be able to get its money back by selling the house.

But the key is choosing the right lender, Bolger says. UCB Homeloans, Nationwide Building Society's subsidiary; The Mortgage Business and Bank of Scotland are three lenders which specialise in self-certification mortgages. Some lend as much as 85 per cent of property value without demanding proof of income.

Getting a mortgage through a mortgage broker, rather than shopping around yourself, is often a good idea. "For someone who is a non-standard case, someone who knows the market could be a big asset to them," Bolger says.

Jobs are not for life these days, it is often said. And in many professions, it is becoming the norm to be self-employed to some extent. Teachers and people in information technology often work on a contract basis. Is such a person really much more of a risk for a mortgage lender than an employee?

"Employed people are a better risk, but it would also be fair to say some lenders do take the caution too far," Bolger says.

Bank of Scotland, 0645 812812; UCB Home Loans, 0645 501 500; The Mortgage Business, 0345 253253; John Charcol, 0171 611 7000; Barclays Mortgages, contact your local branch.

`The Independent `has published a free 27-page `Guide to Mortgages', written by Nic Cicutti, the paper's personal finance editor. The guide, sponsored by Barclays Mortgages, is available to all readers by calling 0800 585691. Or fill in the coupon on page 4.