The self-employed need mortgages, too – yet they may find it difficult to secure the loan needed to buy their own home.
Along with other self-employed workers, taxi drivers are likely to encounter problems in getting a mortgage because of the difficulties in providing proof of income – something required by any mortgage lender as a test of the affordability of the loan.
How much does a taxi driver earn?
There are all manner of taxi driving jobs available. Because of the sheer range of work, in many different parts of the UK, it is relatively difficult to establish an average annual salary.
The website Indeed, for instance, cites an average of £32,562 a year – an encouraging 12% above the national average wage. From a smaller sample of drivers, the website Glassdoor, on the other hand, found the national average income for a taxi driver to be £25,084 – although some drivers claimed to be earning up to £49,000.
Taxi driver mortgages
Just as it is difficult to get any fair representation of the average earnings of a taxi driver, so it is going to be an uphill struggle for the individual taxi driver to prove his or her income to a mortgage lender – and, on that basis, the affordability of the requested mortgage.
Much of that difficulty lies like the job. To keep half-decent accounts, you need to grapple with the host of receipts for fuel, maintenance, and repairs, every single fare you pick up, and fares and other jobs that were cancelled. These may all be recorded on scraps of paper you keep at home, in the car, or the chaotic office or call centre from which you might be operating.
So that potential mortgage lenders have something on which to base their affordability assessments, they typically require applicants who are self-employed to have been in the same business for at least the past three years.
Since your accounts are likely to be one of the few sources of proof of income, therefore, it may pay you to engage an accountant to keep all your records in order. Indeed, some lenders require proof of self-employed earnings in the shape of three – or even four – years of audited accounts.
Other lenders may ask for just two years’ of accounts or self-assessment tax returns (supported by the form SA302, which is HM Revenue & Custom’s formal confirmation of your income and the tax you have paid for up to the past four years).
At one time, self-employed taxi drivers may have been able to satisfy some mortgage lenders of their income by “self-certifying” – effectively, promising that the figures they submitted as to their income were accurate and above-board. Self-certified mortgages gained a poor reputation and were branded “liars’ loans”, however, after some applicants were exposed for lying about their income. In 2011 the Financial Conduct Authority (FCA) banned self-certified mortgage applications because of the risk of lenders providing unaffordable loans.
The FCA currently advises that all mortgage lenders must now conduct checks to ensure that a customer can afford any given mortgage and that, in every case, these checks must also seek to verify the income of the applicant.
Nevertheless, some mortgage lenders make that process of verification more stringent than others – hence the three or four years’ of audited accounts that might be required by some.
Other lenders, on the other hand, recognise that the self-employed and sole traders are operating in a very flexible, fluid, and dynamic environment. Income may fluctuate from one year to another, and even from one month to the next.
With that in mind, some lenders only require a year’s worth of accounts and bank statements in support of a mortgage application from a taxi driver who has been self-employed for the past three years or so.
As important as any proof of income is your credit rating. Any mortgage lender will consider your application only after requesting your credit score from the credit reference agencies – arguing that your past ability to manage debts and credit and make repayments as they fall due suggests that you will be equally responsible in the future.
Even so, a less than healthy credit rating is not an insurmountable problem. You may still qualify for a mortgage – but you may find you are offered a less favourable rate of interest or a lower loan to value (LTV) ratio (in which case, you will need to find a bigger deposit).
Because of the often-challenging nature of getting a taxi driver mortgage, using the services of a mortgage broker may help. Your broker will know about the different lending criteria among the mortgage providers, meaning they will be able to match you to the most suitable mortgage lender and product.