Can you get a mortgage if you are self employed?

Less Stress like making things less hassle and easier to understand, so here’s the lowdown on what you need to know about getting a mortgage if you’re self employed.

How do I get a self employed mortgage?
The process of getting a mortgage when you are self employed should be no different to if you were employed. Lenders may have different criteria and guidelines when it comes to self-employed mortgages, but the process is pretty much the same. You will need to provide identification and address verification documents such as passports and utility bills. 3-6 months’ worth of Bank statements and evidence of your deposit (if purchasing a property).

Ultimately it may differ in how your income is calculated and the income documents you provide. For self-employed applicants operating as a sole trader or partnership lenders will typically request your latest 2 years tax calculations (also known as SA302) and your latest 2 years tax overviews. If you are operating via a limited company they may also want to see your financial end of year accounts for the business or may even request a certificate from your accountant to verify your income.

Do self-employed people pay higher interest rates?
Self-employed applicants have access to the same rates and products as employed applicants. The interest rate payable is not influenced by your employment status but by your deposit size as a percentage and your credit score. The greater your deposit size the lower your interest rate will be. The greater your credit score the more lenders you will have access to.

In rare circumstances lenders may have specialist products available for certain professions for example solicitors and accountants however you would still be applicable for this if you were a self-employed applicant trading in the profession.

How do you calculate my self-employed earnings?
As a sole trader or partnership, lenders will typically look to use an average of your last 2 years net profit figure when calculating your income, however there are lenders that will use your latest years net profits as per your Tax calculation (SA302).

If you are operating under a limited company, lenders will use a combination of your salary and dividends, however, its’ more increasingly common for applicants operating under a limited company to use your salary plus your share of the profits of the company. Again typically this would be averaged over the last 2 years, however, some lenders will use the latest years earnings.

For contractors this could be a calculation of your day rate, averaged and annualised over a 46 to 48 week period.

How long do I have to be self-employed to get a mortgage?
The majority of mainstream lenders require at least 2-3 years worth of self employed history to help evidence and demonstrate a track record to reassure them of affordability, however, there are also specialist lenders within the market that will be able to accept as little as 1 years trading history.

What can I do to improve my chances of getting a self employed mortgage?
Collect documents related to your income to enable us to provide you with a calculation of how much you can borrow and also to help determine which mortgages you are eligible for. For sole trader and partnership applicants, lenders will need to see your latest 2 Tax calculations and Tax overviews – use our handy guide to help you access these documents. For those operating under a limited company we will need your last 2 financial end of year accounts for the business.

Speak with your accountant to help provide the majority of the income documents requested by the lender. In some circumstances the lenders may wish to receive confirmation of your figures from your accountant directly. Don’t catch them on the hop, make your accountant aware you’re applying for a mortgage to ensure the process is as smooth as possible.

Significant increases or decreases in your income figures will raise queries. Lenders will need to understand the causes and justification of such changes in order to reassure them that your business is sustainable and the mortgage is affordable. Provide clear and in depth explanations on any queries raised. Don’t view queries raised as a negative, the lenders are just trying to understand your business and your means of meeting your commitment.

Credit scoring is essential to all mortgage applications whether you’re self-employed or not. The greater your credit score, the greater your chances of securing a mortgage. Ensure your credit file is up to date, that you are registered on the electoral roll and that your bills are paid on time. Lenders view your credit report as a way of demonstrating your track record of meeting your credit commitments.

How much do I need to save for a deposit?
With a recent new scheme released you can use as little as £5,000 for a deposit on a property, however the majority of lenders will require a minimum deposit size of 5%-10%. Ultimately the bigger your deposit, the lower the interest rate. Being self-employed doesn’t impact what deposit you require, although having a larger deposit may provide lenders with more favourable criteria for self employed applicants.

Hopefully we’ve answered some of the questions you might have. If you want to know more about self employed or any other kind of mortgages, speak to one of our friendly advisors who are ready to help you.