A Guide to Self-Employed Mortgages

Working for yourself is extremely rewarding but it’s also hard work and when the time comes to get onto the property ladder it can also be tough finding the right mortgage for you.  The application process of getting a mortgage can be difficult to navigate, but it can be even more daunting for those who are self-employed.

Self-employment comes in lots of different forms so let’s look at what self-employed means. First and foremost, you might own your own company, or you may have a large share in a business. There are also countless other professions whereby lenders might class you as self-employed, such as freelancers, contractors, consultants, photographers or musicians to name just a few.  In general terms, lenders will class you as self-employed if you own 25 percent or more of a business.

There are a range of factors that influence the outcome of a mortgage application and you may have heard rumours about how difficult it is for the self-employed.  We are here to banish that myth.  In reality, those who are self-employed have exactly the same chances of being approved and have access to exactly the same rates as those who are in full time employment.  The real issue is that self-employed people have more complex incomes and must be able to prove their earnings as well as proving the affordability of the mortgage.

Mortgage approval doesn’t just come down to the numbers though; there are several other factors that also influence a lenders decision. Here are our best tips to improve your chances of being approved for a self-employed mortgage:

Speak to a broker:

A broker will take the time to understand your financial situation.  They have access to a wide range of lenders and will be able to match you with a lender suitable to your financial situation. Whether you’re buying a property or just remortgaging, mortgage advice can be a great help. Taking independent advice can make the different between a successful mortgage application and being rejected. It may also lead to a significantly better value deal, potentially saving you thousands of pounds over the mortgage term.

Check your credit history:

Have a good read through your credit file and ensure that everything is correct and query anything you aren’t sure of.  Close down any credit accounts that you no longer use.

Ensure you are on the electoral roll:

The easiest ways to boost your credit score is to ensure you are on the electoral roll.  You will not be eligible for a mortgage if you are not.

Take a good look at your spending habits and reduce or eliminate:

Take a detailed look at your bank statements check if there are any spending patterns that might cause concern to your lender. For example, a history of gambling.

Minimise applications for credit:

Multiple credit checks can reduce your credit score.  This includes applications for insurance. Be wary of using comparison sites for insurance as they can run multiple credit checks to see what insurance policies you are suitable for you.

Do not use Payday loans:

Payday loans do not paint a good picture of your finances, and lenders will often view this as you being in financial difficulty and struggling to meet your existing commitments. Many lenders will simply decline to lend if there is a recent record of a Payday loan.

Don’t use the maximum amount available on your credit card:

It’s simple, the higher percentage use of your credit card balance, the lower your credit score.  Most people don’t realise it but a high percentage of your credit score is heavily influenced by your credit utilisation ratio.

Don’t just make the minimum payments on credit accounts:

The minimum payment on credit cards and store cards are usually low and mostly made up of interest accrued. Although it can be tempting to only make the minimum payment, this can suggest to lenders that you are in financial difficulty so it’s worth making a larger payment and where possible, switching to an interest-free card so that the debt can be paid off quicker.

Save the biggest deposit you can:

Lenders usually save their lowest interest rate for those with the biggest deposit.  If you are being gifted part of the deposit from family members, ensure that this is in place before applying.

Get all your documents in order:

The majority of information required for a successful application is contained within your financial history which with your permission is available for your broker and lender to view.  In general though, whether you’re self-employed or employed you will need to be able to prove who you are to the lender so make sure that your passport is up to date and that your driving licence has your current address on it.  Beyond this, if you are self-employed, depending on how your business is set up, the information you are required to provide may differ:

Sole Trader:

  • Up to date trading accounts or SA302 from HMRC. Please note that it has to be less than 18 months old.

Limited Company:

  • Income calculated on the salary and the dividends
  • Two years worth of fully signed accounts. Please note that the latest accounts have to be less than 18 months old.

Partnership:

  • Up to date trading accounts or SA302 from HMRC. Please note that it has to be less than 18 months old
  • Details on your share of the partnership’s net profit

It’s important to remember that every mortgage lender is different and has varied range of criteria of what will and won’t be accepted.  When it comes to self-employed applicants, some lenders will require a minimum of 3 years worth of accounts while others will only require one.  Our advice would be to enlist the help of a mortgage advisor who knows the market inside out and know which lenders would consider your application before you even start.

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