Despite recent reports that self-employed people often believe they’d struggle to get a mortgage, being your own boss won’t necessarily make it harder to get on the property ladder.
Prior to the financial crisis, self-employed people used to be able to ‘self-certify’ their mortgages, which meant that some mortgages were available without having to show proof of their income.
However, the city regulator the Financial Conduct Authority put an end to self-certification following its Mortgage Market Review, and since then borrowers have been required to provide evidence of their earnings when applying for a mortgage.
Self-employment is a growing trend in the UK, with recent data from the Office for National Statistics showing that there are currently more than 4.9m people working for themselves; a number which is expected to rise significantly over the next few years.
As a result of this growth, some lenders now have a better understanding of the complexities of self-employed income and are prepared to take a more flexible approach.
Many lenders will want to see a record of the last two or three years worth of income, in the form of Self-Assessment tax calculations (SA302’s), Tax Year Overviews (TYO) from HMRC, or accounts showing trading figures. They may also ask your accountant to complete a certificate confirming earnings.
There are, however, some lenders who will consider applications with only one year’s worth of accounts, which is useful for those who’ve only recently decided to go it alone.
A mortgage broker can advise which lenders tend to look favourably on self-employed applicants, and which might accept fewer than two years of earnings.
All mortgage applicants, regardless of whether they are self-employed or working for a company, will be asked for information on their outgoings including things such as debt repayments, childcare costs, holiday spending and pension contributions.
Boost your mortgage chances
If you’re self-employed, as well as having your proof of income and all the other paperwork you’ll need to support your application readily available, there are several other things you can do to boost your chances of being accepted for a mortgage.
For example, having a substantial deposit if you’re buying a home, or a significant amount of equity if remortgaging will help, as lenders will consider you lower risk than someone who’s borrowing a bigger proportion of the property value.
It’s also a good idea to check your credit report to make sure that it’s as good as it possibly can be. The higher your score, the more likely you are to be accepted for a mortgage, so make sure you don’t miss any debt repayments and shut down any credit accounts you no longer use.
Can you get a mortgage if you work for yourself?