If you’re self-employed, there are lots of great advantages. You’re your own boss, you answer to yourself, and you may even be able to enjoy flexible working hours. The number of self-employed professionals is on the up here in the UK.
There is a but – it can be more difficult and more complicated to secure a mortgage in self-employment. It’s always been possible, but issues such as irregularity of pay and the need to provide more paperwork can be challenging, particularly when securing competitive rates.
At Mortgage360, we have access to a comprehensive panel of lenders which is representative of the whole of the market, and we can help guide you through every step of the process, providing specialist mortgage advice to ensure you get a mortgage deal that’s right for you.
Is it harder to get self-employed mortgages?
It is more complex, but it’s perfectly achievable to meet the mortgage lenders’ strict lending and affordability criteria and secure self-employed mortgages. The growth in self-employed professionals means an increasing number of lenders are refining their offers to match the demand in this market.
It may mean providing more paperwork than people with a monthly salary, but you’ll have access to the same mortgages and be subject to the same checks
Dependent on your individual circumstances, your deposit, the length of time you’ve been running your business, your accounts, your credit score and your credit history, the right mortgage is out there for you.
Who can get a self-employed mortgage?
The qualification ‘self-employed’ covers a variety of classifications. You might be a freelancer, a sole trader or a business owner. Equally, you could be a company director, a partner in a business or a contract worker. Most lenders will class you as self-employed if you own more than 20% to 25% of the business shares from which your main income is derived.
It is the role of the mortgage lender to judge your ability to finance your mortgage, and the way your business is set up and managed can impact their decisions. People in self-employment have individual requirements and differing personal circumstances. At Mortgage360, we’ll advise and guide you through the whole process.
Understanding the Mortgaging Process for Self-Employed People
The mortgaging process is essentially the same as for an employed person, but the paperwork you will need to provide will differ. Company accounts, your SA302 (Tax Calculation) detailing income, expenses, and gross and net profit will all play a role during the affordability assessment.
The additional paperwork and affordability checks may mean the process takes slightly longer than for a conventional mortgage application.
Typically, you will need:
- Two or more years of certified accounts
- SA302 (Tax Calculation) forms for the past 2-3 years’ and corresponding HMRC Tax Year Overviews
- For contractors, evidence of current and historical contracts
You’ll also need all the standard proof of identity documentation, including passport and driving licences and at least three months’ personal and business bank statements to assist with the affordability checks to ensure you can afford the monthly mortgage repayments. The lenders will ask questions about your monthly costs such as childcare, commuting, credit cards, car finance etc.
The lender’s objective is to understand your personal situation in as much depth as possible, to ensure your business is healthy and sustainable. A longer track record with your business will help, and your work history prior to setting up your business will also play a part in the decision.
How Many Years Do You Have to Be Self-Employed to Get a Mortgage?
Financial regulations mean that lenders are required to ask for proof of income, and this can be more difficult for a self-employed person.
Some lenders ask for at least three years’ accounts to consider you for a mortgage, but if your business is new and you’re looking for a mortgage, it is possible to secure one with just a single year’s accounts. At Mortgage 360, our experienced mortgage broker will advise you accordingly and help you prepare for your application.
If you have a limited trading history, this will be a more detailed process requiring information on profitability projections and cash flow. If you have a larger deposit, this will help to mitigate the perceived risk for the lender. A good credit history will also be a benefit
Credit Score and Trading History
The ideal situation for self-employed people seeking to secure a mortgage is to have been trading for three or more years, and have evidence through finalised accounts, a healthy deposit, and a good credit report.
But if you have a much shorter trading history and a personal income record detailing low salary levels, it can be more challenging. Most lenders will average out your earnings over two to three years, so if you have a bad year on record for any reason, this can have a significant impact.
At Mortgage360, we have access to sympathetic lenders who understand the difficulties faced by self-employed people looking to secure a mortgage. We’ll help you present your application in the best light to increase your chances of success.
Affordability Calculator
Stamp Duty Calculator
Repayment Calculator
Different Types of Mortgage Options Available to Self-Employed Applicants
In today’s mortgage market, most lenders offer precisely the same mortgage deals to self-employed mortgage applicants as to any other type of borrower. A specialist self-employed mortgage is really a misnomer, with self-employed mortgages referring to the applicant rather than the product or the process
You won’t necessarily pay higher interest rates, either. If you meet the lender’s criteria, then the source of your income is not important; more critical is the stability and reliability of your income. Your overall financial picture will determine the rates you are offered, including your credit history and the deposit you can provide.
Are self-cert mortgages still available?
Self-certification mortgages were designed for self-employed people, allowing them to self-certify how much they earned in a given year. There was no requirement to provide evidence of this, initially.
The majority of self-certification mortgages were withdrawn in 2008 and banned completely in 2014.
Today, the real emphasis for mainstream lenders and specialist lenders is on responsible lending and affordability, looking at your ability to afford the mortgage repayments both now and into the future, whilst being able to evidence your true earnings.
Getting a Mortgage Without Accounts
It is possible to secure a self-employed mortgage without accounts if you’re a freelance contractor. Lenders will want evidence of your income over recent years to work out an average and therefore determine how much you can borrow. Talk to a professional mortgage advisor to understand the implications and to access specialist lenders.
Applying for a Mortgage Through a Self-Employed Mortgage Broker
At Mortgage360, our advisors will work closely with you to secure the right self-employed mortgage deal at the best rate based on your individual circumstances. We understand which mortgage lenders are sympathetic to the self-employed, and we can advise on the best way to present your personal circumstances.
We’ll save you both time and money – you can concentrate on your business while we work on getting a bespoke deal matched to your individual requirements. Call us for an initial consultation.
FAQ’s
Certain lenders will still consider an application even if you’ve recently switched from a Sole Trader to a Limited Company setup. However, these lenders will normally want evidence that you’ve been trading as self-employed, in the same line of work, for at least 2-3 years. Speak to our specialist advisers at Mortgage360 to find out more.
No, some lenders will use your share of NET profits and salary, as opposed to dividends and salary. This can often increase your borrowing potential, which may help you achieve that dream home.
Yes, some lenders only require 1 year of trading/account, but they may require a projection for your next year. Furthermore, lenders will often look at your employment history – they prefer that you have at least 2 years of history working in a similar occupation, albeit previously employed, but now self-employed.
