Self-employed mortgages

Being self-employed doesn’t mean you can’t get a mortgage. Here’s how you can improve your chances of a successful application.

How do you get a self-employed mortgage?

There isn’t a specific product called a self-employed mortgage. You will be applying for the same mortgages as anyone else. The difference is, you’ll have to provide more evidence you have a reliable income when you’re self-employed.

There used to be a mortgage product aimed at the self-employed called a ‘self-certification mortgage’. These mortgages allowed you to declare your income without proof – but were banned in 2014, over concerns that customers were being approved for mortgages they couldn’t afford.

Getting a mortgage when you are self-employed can be challenging but it certainly isn’t impossible. Don’t assume you are going to be rejected simply because of your employment status.

Do self-employed people have to pay higher mortgage rates?

You shouldn’t have to pay more for your mortgage simply because you are self-employed.

If you can provide proof of your income and a mortgage lender is happy you can afford the repayments, you should qualify for the same mortgage rates as someone who is in a permanent, full-time role.

The interest rate you will pay on your mortgage will rely on other things – not your employment status. In general, the larger your deposit the lower your mortgage rate will be.

The other key influence on your mortgage rate will be your credit score. The better your credit rating, the more mortgage deals will be available to you. Read our guide to find out more about how your credit rating affects your mortgage application.

What will I need to provide for a self-employed mortgage?

If you are self-employed you will need to provide the same documents as anyone else, such as:

  • Passport or driving licence (for proof of identity)
  • Recent utility bills (for proof of address)
  • Bank statements for the previous three to six months (lenders will often ask about your spending habits)
  • Evidence of deposit money (if not provided by bank statements)

You can find more details of the general things you need to provide in our guide to applying for a mortgage.

Other self-employed mortgage requirements to keep in mind

Self-employed people will also need to provide other documents to show their income. This can include:

  • Two or more years of certified accounts – ideally these should be prepared by a qualified accountant
  • SA302 forms or a tax year overview from HMRC for the last two to three years

If you are a contractor, you may also need to show evidence that you have upcoming contracts. Company directors may need to provide proof of dividend payments or retained profits

How will a lender calculate my self-employed mortgage earnings?

In most cases lenders will look at your net profit over the past two to three years if you are a sole trader. They then take an average from those figures.

If you have a limited company, lenders will look at your share of net profit or your salary and dividends.

If you’re a contractor, lenders will take the average of your income over the last few years. If your earnings vary dramatically, they may take your lowest earning year as a baseline for what you can afford to borrow. Some lenders may be willing to take an annualised figure from your day rate.

What self-employed people can do to improve their mortgage chances

There are several ways you can improve your chances of getting a good mortgage deal when you are self-employed. These include:

Gather your SA302 forms

When you file your tax return, HMRC will create a SA302 form which shows your income tax calculation for that year and evidence of the earnings you submitted. Lenders like to see three SA302 forms as evidence of self-employed income.

If you filed your tax return online, you could print your SA302 forms from your HMRC online account. If you send your return by post you will need to contact HMRC to get the forms posted to you, which can take up to two weeks. Get your forms together before you make a mortgage application, so things run smoothly.

Get an accountant

Lenders don’t want to just take your word for it when it comes to your earnings. If you have a qualified accountant prepare your accounts they will carry a lot more clout.

Just make sure your accountant doesn’t do too good a job of minimising your income in order to reduce your tax bill. The smaller your income, the smaller your profit – which will affect how much you can borrow with a mortgage.

Save the biggest deposit possible

A large deposit will open up more mortgage deals for you to choose from. As each bank or building society will have different lending criteria you may find one that is more favourable to self-employed applicants.

Boost your credit score

A good credit score is essential if you want to get the best deal on a self-employed mortgage. There are several simple steps you can take to improve your credit score – from getting on the electoral roll, to closing old credit accounts. Find out more with our guide to improving your credit score.

Make sure you check your credit score before you apply for a mortgage. It is free to look at and means you can correct any mistakes and make improvements, so you stand the best possible chance of being approved for your mortgage.

How long do you have to be self-employed to get a mortgage?

Most lenders will require you to provide two to three years of accounts. But if you haven’t been self-employed for that long, it is still possible to get a mortgage. It may help if before you were self-employed, you were doing a similar full-time job to what you are now. Be prepared to show the accounts you do have, and to answer some extra questions.

How to find the best mortgage deals for the self-employed

A mortgage is a huge financial commitment and the difference between a good deal and a bad deal can add tens of thousands of pounds to what you end up paying. A difference of just 0.5% can add almost £2,000 to your repayments over three years on a £200,000 mortgage.

Remember that every time you apply for a mortgage the lender will perform a credit search. If the lender rejects you, this will be recorded on your credit file and can damage your credit score – making it harder to get accepted by other mortgage lenders.

This means it can be a good idea to use a mortgage broker. They know the market and know which lenders are likely to accept a self-employed application, so they can help you find the best possible deal.

If your mortgage application is rejected don’t panic, it isn’t the end of the road. Read our guide on what to do if you’re refused a mortgage to find out what to do next.

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