One of the biggest myths in the mortgage market is that self-employed people can’t get a mortgage.
While it is true that those who are self-employed can no longer get a self-certification mortgage based upon their word, generally their chances of being able to borrow and access the wide range of products on the market are still just as good as anyone else’s.
If you are self-employed and want to get a mortgage, you might want to start with some research to find the right advice and products for self-employed mortgages.
Proving your income to obtain a self-employed mortgage
There are around 4.8 million self-employed people in the UK according to the Office of National Statistics. If you happen to be one of them and you’re in the market for a mortgage, you will need to have proof of income (like any borrower). For instance, two years of company accounts or tax returns to show to lenders is a standard requirement. Some lenders require three-years-worth of records to prove that you have the means to repay the loan, others just one.
What type of mortgage will I get?
There are both specialist and mainstream lenders out there and you should have the choice to access fixed-rate or variable tracker type mortgages. You have just as much right as an employed person to a mortgage. The key is to shop around and get the best deal.
Mortgage lenders usually calculate how much they are willing to lend using a combination of your credit score and salary records. Clearly, if you are not an employee with a regular paycheck it is going to be more difficult to work out your income using standard calculations.
Many mainstream lenders can turn down applications because they deem a self-employed customer to have a variable or unpredictable income or haven’t been trading for long enough.
What counts as being self-employed?
Generally, you are classed as self-employed if you own 25% of a business or more. Those who are in a partnership are treated the same as those who are sole traders. A limited company means keeping your business separate from your personal affairs and will have at least one director who pays themselves a basic salary plus dividend payments.
What do I need to do to get a self-employed mortgage?
Every lender has its different criteria, but you’ll generally need over two years accounts, self-assessment returns (SA302s). Some lenders require you to prove what you earn over a year, and many lenders require proof of over three years income.
Bear in mind the income left after an accountant has taken off all tax-deductible expenses might lead lenders to think you are on a reduced income. Directors might have a mixture of salary, plus dividends. You may also be able to find a lender who would consider your application if you have one year of accounts plus a projection, but these are in the minority. A re-mortgage has the same criteria.
Saving up for a deposit
Self-employed people may benefit from putting down a larger deposit and checking their credit rating. You can help yourself if you sort out your deposit early or take time to save up more. If using business funds speak to your accountant as when offering a large lump sum, a lender may ask the accountant to confirm it will not be detrimental to the business.
Tips to help get a self-employed mortgage
There are some factors that might impact a self-employed borrower’s chances of getting a mortgage. Overall, you’ll stand a better chance of getting a self-employed mortgage if you:
- Check your credit report (You can sign up for free with Check My File, Equifax or Experian)
- Ensure you are on the electoral roll
- Make sure your accounts are up to date
- Speak to mortgage brokers
- Have your documents all in order
- Your business must be in profit
- Most lenders will average your income over three years, though they may ask for two or even one year’s accounts
Other important factors
It’s worth noting that when lenders make decisions, they do not consider the following:
- Turnover is not a lending criteria
- Some lenders will work from latest trading figures only
- Company Directors don’t need to draw the profit to have it considered
- Some self-employed mortgage lenders will work from an Accountant’s reference and will not require SA302s.
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