Getting a mortgage at any time can be a stressful experience, but when you work for yourself the banks seem to put out extra hurdles that can make the process even trickier. Whether you’re a sole trader or a company director, it’s important to understand how the mortgage process differs for those who are self-employed.
In the past, lenders offered ‘self-certification’ mortgages, designed to help self-employed people get a mortgage without the need to prove their income. Unfortunately, these were open to a lot of abuse, and were banned back in 2014. Now, you’ll need to apply for your mortgage just like anyone else – but that doesn’t mean that getting a loan will be impossible. It’s just a case of making sure that you’re in a good financial situation, with all of your paperwork in order.
Providing proof of income
The burden of proof is much higher for self-employed people, as you don’t have an employer to vouch for your income. This means that you’ll need to pull together a range of documents to give the bank or lender confidence in your ability to make repayments.
When you apply for your mortgage, you’ll be expected to supply the following:
- Two or more years’ certified accounts
- Two- or three-years’ worth of SA302 forms or tax year overview forms
Contractors will also need to show evidence of upcoming contracts, while company directors will be asked to provide evidence of their dividend payments or retained profits.
If you’ve only been trading for a short amount of time, you may not have two years’ accounts to show. In this case, getting a mortgage will be harder but still not impossible. You will need to work with the bank to find another way of proving your income, which might include showing them contracts that you have secured for upcoming work.
You’ll also need to show your passport, driving licence, council tax bill, a recent utility bill and six months’ worth of bank statements. These documents will be used both for proof of your identity, and to get a sense of your financial health.
Working with a qualified accountant
If you can work with a chartered accountant to prepare your accounts before making your mortgage application, then this will be a definite tick in your favour. From a bank’s point of view, it gives them reassurance that the accounts you’re providing are accurate and reliable. It also shows a level of financial responsibility – always a positive.
Improving your chances of success
One of the best things that you can do to improve your chances of getting a mortgage is to increase the size of your deposit. By putting up a bigger deposit you’re proving your ability to save money while also asking for less from the bank. This means that lenders will see you as a less risky proposition. Even if it means waiting a little longer before buying your home, saving up for a bigger deposit can help to make things run smoother.
You can also improve your chances by working closely with a mortgage broker who understands the market. They’ll be able to help talk through your application and iron out any weaknesses before you approach a lender.