How to Get a Mortgage When Self-Employed.

Are you self-employed looking to get a mortgage? We’ve put together this handy guide to self-employed mortgages to help you improve your likelihood of having your application accepted.

Can Self-Employed Get a Mortgage?

Yes, getting a mortgage when self-employed is certainly possible. You are generally considered as self-employed by lenders if you have more than a 20% share of the business from which you get your main income. You could be a sole trader, a partner or director, or a contractor who has set up a limited company.

However, it is worth noting that you may find it harder as you’ll need to prove you have a reliable income, which can be more difficult than for an employed individual with payslips. Without proof of a reliable income, lenders won’t be confident that you can afford to borrow the amount you need to buy a property.

Most Suitable Mortgages for Self-Employed

“Self-employed mortgages” don’t exist; the self-employed apply for a mortgage in exactly the same way as everyone else. Although you’ll need to pass the lender’s affordability tests in the same way as any other borrower, you will need to provide far more evidence of your income as you don’t have an employer to vouch for your wage.

Previously, there was a type of mortgage called “self-certification mortgage” which was specifically designed for the self-employed – this enabled self-employed individuals to self-certify how much they earnt, thus allowing them to borrow without having to prove their income – but this was banned in 2014 due to concerns that borrowers were having applications accepted for mortgages they simply couldn’t afford. Lenders now implement tighter regulations and more aggressive income-assessing protocols for UK borrowers.

Self-Employed Mortgage Requirements

Those applying for a self-employed mortgage will usually need to provide the following in order to prove their income:

  • Two or more years’ certified accounts
  • SA302 forms or a tax year overview (from HMRC) for the past two or three years
  • A track record of regular work
  • Evidence of upcoming contracts (if you’re a contractor)
  • Evidence of dividend payments or retained profits (if you’re a company director)

You may also be asked to show things like household bills, car finance agreements, travel/commuting costs, holidays and more. This is because lenders will want to understand how much you spend on bills and other costs to be sure that you could afford mortgage repayments.

How Will Lenders Assess My Income?

How lenders assess your income will depend on which type of self-employed category you fall into –

  • Sole Traders – Lenders will use your net profit figures based on either the last year or an average of the last two and three years.
  • Partnership/Limited Liability Partnership – Lenders will use your proportion of the net profit figures based on either the last year or an average of the last two and three years.
  • Limited Companies – There are three main elements which the lenders look at when assessing your affordability for your mortgage. These are Directors Salary, Dividends and Net Profit. Some lenders will work from the Net Profit and the salary you have drawn from the business over the last year. The majority of lenders however will work from your Directors salary and the amount of dividends that you have drawn from your business.
  • Freelance – This will depend on whether you freelance as a sole trader or whether you have your own limited company.

How Long do You Need to be Self-Employed to Get a Mortgage?

Although the majority of lenders require two or three years of accounts, there are lenders that accept self-employed people who have only been trading for 12 months.

Self-Employed Mortgage Advice & Tips

To help maximise the chances of securing your mortgage as self-employed, here we’ve listed and explained some of our top tips.

Ensure all accounts are up to date & get finances in order

The most competitive rates tend to only be offered to those with exemplary credit records. Paying off any debts, closing dormant accounts, getting on the electoral roll and making sure there are no incorrect entries on your credit report will help to improve your credit rating.

Get in touch with a professional mortgage broker

Not all lenders have the same criteria, which is why it can be incredibly useful to speak to an experienced mortgage broker. They’ll know which banks and building societies are most likely to accept/have stricter lending criteria so will be able to match you with a suitable lender.

Here at The Mortgage Heroes, we have access to the whole of the mortgage market and specially negotiated rates through our network Quilter Financial Planning Limited. We’re experts in getting the self-employed the right mortgagecontact our team of heroes today to get started.

Utilise an accountant

Many mortgage lenders prefer self-employed mortgage applicants to provide accounts that have been prepared by a chartered certified accountant as it enables them to be sure of your reliability. In fact, some lenders won’t consider applications from self-employed individuals who don’t have up-to-date accounts signed off by an accountant.

Make more than the minimum payment

Making just the minimum payments can be a sign to the lender that you’re in financial difficulty. If you’ve used a high % of your credit card, you’ll likely have a lower credit score so try to make more than just the minimum payment.

Save for a bigger deposit

Like any other property purchase, the bigger the deposit you’ve got, the best chance you have of securing a mortgage at a good rate. A deposit of at least 10-20% is required by most lenders.

Self-Employed Mortgage Rates

Providing you’re able to supply enough information about your income, your mortgage deal should be the same as someone with a comparable salary in a permanent, full-time job; self-employed mortgages aren’t generally more expensive. Your credit rating and size of deposit will most probably be the biggest factor impacting the rate you get.

Self-Employed Mortgage Broker

If you’re looking to get a mortgage as self-employed, please don’t hesitate to get in touch with The Mortgage Heroes today. We have a wealth of experience in helping the self-employed find the right mortgage; whatever your situation, we can help. Even if you have only been self-employed for 12 months, our access to the mortgage market means we can find you the most suitable mortgage.

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