There are nearly 5m self-employed workers in the UK but getting a mortgage if you work for yourself can be tricky if you don’t have the right paperwork in place.
According to latest data from the Office for National Statistics (ONS), in the three months to July 2019 there were 4.93m self-employed people in the UK, equivalent to 15% of the working population.
If you’re self-employed, you’ll have access to the same mortgage rates as everyone else, but lenders will need to see proof that you have a regular income. This isn’t always easy if, for example, you’re working as a freelancer or contractor and your income tends to fluctuate, or if you’ve only recently become self-employed and don’t have two or more years worth of earnings.
Two-thirds (68%) of Britain’s self-employed workers are finding it difficult to get a mortgage, research by Kensington Mortgages found, whilst one in five (22%) self-employed renters think that they will never be able to own a home thanks to high house prices and their sporadic income.
Yet based on Kensington’s mortgage application data, self-employed mortgage borrowers are in fact a safer bet than first-time buyers, typically borrowing much less than lenders would allow.
What proof of income do you need to provide if you’re self-employed?
Before the Mortgage Market Review (MMR) in 2014, if you were self-employed you could simply tell a lender how much you earned without having to provide any proof. This was known as ‘self-certifying’ and meant you could get a mortgage even if your income varied from month to month.
However, self-certification mortgages are no longer available and now all lenders must see evidence of your income before they will offer you a mortgage.
You’ll usually be asked to provide proof of earnings for the last two to three years, although some lenders will consider applications from borrowers with only one year’s records.
You may be asked for accounts, but if you don’t have any then lenders will generally accept your self-assessment tax calculations (SA302s) and a tax overview, which can be printed from the HMRC website. Alternatively, a lender might ask your accountant to complete a certificate certifying your income.
Make sure you have recent records
When supplying the required paperwork, bear in mind that many lenders specify that the most recent year-end documentation must not be older than 18 months before the date of application.
We’ve therefore just passed the point when figures for 2017/18 will no longer be acceptable as the latest year’s figures, so it’s important to ensure your paperwork is up to date if you are planning to make a mortgage application.
What other information is required?
As well as providing evidence of your income, lenders will want to see proof of your identity and address, so you’ll need to show photo ID such as your passport or driving license and provide a recent utility or council tax bill showing your address.
You’ll also need to submit bank statements to show details of your outgoings such as childcare costs, household bills and other loan or credit card payments. Lenders typically ask for the last three month’s statements, although some may request the last 6 months.
Is your self-employed paperwork up to date?