Applying for a mortgage can be tricky, but if you’re a self-employed worker, freelancer or contractor, you could face extra challenges.
In the past, self employed people could get a self-certified mortgage – telling a lender how much they earned without providing any evidence. But these are no longer available and now all lenders must see proof of income for all applications.
If you’re self-employed, you’ll now need up to date proof of income showing exactly how much you earn to apply for a mortgage.
What being self-employed means for your mortgage
Lenders like lending to people they consider to be at a low risk of defaulting on their monthly payments. If you’re self-employed, lenders will want to see proof of a steady income over time.
Lenders will usually assess self-employed income in different ways - depending on whether you operate as a sole trader, partnership, or as a limited company.
For a sole trader, lenders will usually look at the net profit of the business. For partnerships, they’ll look at each partner’s share of the profit. If you’re the director of a limited company and looking for a mortgage, lenders typically look at your salary plus dividends. Dividends can make up a major part of your income if you run your own company, so always make sure any lender you’re applying to takes both into consideration when working out how much they will lend you.
Things you might need to have to hand:
• Two or sometimes three years’ worth of accounts prepared by an accountant
• SA302 – the self-assessment form that shows how much income you declared to HMRC and how much tax you paid on that
• Bank statements
• Proof of your deposit
• Details of any debt repayments and other outgoings, including things such as childcare costs, holiday spending and pension contributions.
Some lenders insist that accounts are prepared by an accountant who is chartered or certified, so bear that in mind if you’re looking to appoint someone to help you with your paperwork.
Don’t have two or three years’ accounts? Don’t despair. Certain lenders may still be prepared to offer you a mortgage, particularly if you can prove that your business has plenty of work going forwards, or if you can show you have only recently left full-time employment but will be continuing in the same industry as a contractor.
A mortgage broker will advise which lenders tend to look favourably on self-employed applicants, and which might accept fewer than two years of accounts.
Ways to boost your chances of being accepted
You can improve your chances of being accepted for a mortgage if you’ve an excellent credit rating, a decent deposit or a large chunk of equity in your home if remortgaging to a better deal.
Remember: lenders won’t just run a credit check on you as an individual, they’ll also credit check your business too, so make sure there aren’t any outstanding debts, and check you’re not late with any payments.
How to get a mortgage if you’re self-employed