If you’re self-employed and keen to get on the property ladder, you may be concerned about your suitability for a mortgage. All too often, self-employed workers are told they’ll need to jump through hoops to pass the criteria of a mortgage lender, but is this really the case? Here, we look at what you’ll need to consider if you’re self-employed and thinking of getting a mortgage, the documentation you’ll need to provide and how to boost your chances of buying a home.
Do I count as self-employed?
You will be classed as self-employed if you own more than 20-25% of a business from which you generate your main income. It’s also worth bearing in mind that there is more than one type of self-employed worker, and this can affect the way you’re assessed by a lender. If you’re a sole trader or freelancer, for example, you’ll need to fill out a self-assessment undersigned by an accountant and provide an SA032 form. Whereas if you own a limited company, mortgage lenders will want to know what your earnings are from your business.
Do I need to be self-employed for a set time to be able to get a mortgage?
This is likely to be your main concern if you’re self-employed and keen on getting a mortgage. As a rule, lenders will want to see 2-3 years’ worth of accounts. They’ll then use these figures to take an average of your earnings and calculate how much they’re willing to lend to you. This will be key criteria in their decision-making, so it’s worth speaking to a specialist mortgage advisor. Not only will they have an understanding of how self-employed income is calculated, but they can liaise with lenders on your behalf. They’ll also be able to improve your chances of getting a mortgage and have useful knowledge about which lenders offer competitive interest rates to self-employed workers.
What documentation will I need to provide if I’m self-employed and getting a mortgage?
Ultimately, as a self-employed worker, you’ll need to prove you have a reliable income. In the absence of a monthly wage slip, mortgage lenders are likely to ask detailed questions and want to see more financial evidence. They’ll want to be certain that you can afford the mortgage you want before they lend you the funds, so you’ll need to provide the following:
– SA302 form or a tax year overview from HRMC for the past two or three years based on your tax returns. An accountant can provide these for you.
– Proof of retained profits if you’re a company director.
– Evidence of upcoming contracts if you’re a contractor.
– Six months’ worth of bank statements.
– ID in the form of a passport or driving licence.
– Utility bills from the last three months.
– Council tax bill.
Because mortgage lenders will want to analyse your bank statements to assess your ability to maintain monthly payments, they may also want to know more about your other outgoings. These can include travel costs, childcare, household bills, credit card and loan repayments and car finance agreements.
What can I do to boost my chances of getting a mortgage when I’m self-employed?
If you’re self-employed, you’ll be able to get a mortgage as a first-time buyer or re-mortgage an existing property just like a salaried worker. But you will have to meet stricter affordability criteria as you won’t have an employer to back up your income. This is something a specialist broker can help with.
To improve your chances of securing a mortgage, it’s a good idea to have your accounts prepared by a qualified chartered accountant, as they can vouch for your reliability. A good credit history will also work in your favour, as will correcting any mistakes on your credit report. It’s also worth saving up as much as you can for a deposit, as this will open up more options when it comes to choosing the mortgage deal that’s right for you as a self-employed worker.