Can you get a mortgage if you’re self-employed?
Often self-employed think that it will be harder to get a mortgage than if they were employed. However, that’s not necessarily the case. Here are our top tips for what you need to get a mortgage if you’re self-employed.
When are you classed as self-employed?
A lender will usually class you as self-employed if you own more than 20-25% of a business, from which you earn your primary income.
It will be the same whether you are a sole trader, a partner, a company director or contractor.
You will need to prove your income
As you won’t necessarily have payslips to show all of your income, lenders will ask you for a range of documents that they will then use to measure how much you can afford to borrow.
What you will need to provide
To prove your income, you will generally be asked for the following:
- At least two years of certified accounts
- SA302 form or a tax calculation from HMRC
- Evidence of upcoming contracts (if you’re a contractor)
- Evidence of dividend payments or retained profits (for company directors)
Commonly lenders will want your accounts to have been prepared by a qualified chartered accountant, and they may also ask for further information if needed. This list only a guide, and the information a lender requires may differ.
If you have only been trading for a short while, then you may still be able to find a lender that will provide you with a mortgage. However, it will limit the options available to you, and you may find rates and fees are higher because of this.
In addition to the above, you will also be required to provide the following:
- Some sort of photo identification such as a passport or drivers licence
- Council tax bill
- Utility bills for a specific period
- Six months’ worth of bank statements
This information is usually required for every mortgage application, regardless of your employment status. The lender uses it to check you are who you say you are and also to assess your suitability for the loan.
Lenders will analyse your bank statements to check that you can afford to borrow the amount you are asking for. They may have further queries that you will need to answer as part of this due diligence.
If you have outstanding credit, then it is common for the lender to request further information about your debt and whether it will be paid off before the mortgage commences or whether it will remain as a debt.
Any credit will usually be taken into consideration by a lender when calculating affordability.
Is it harder to get a mortgage when self-employed?
If you have the required paperwork and can meet the suitability requirements for the loan, then it should, theoretically, not be any more difficult for you to obtain a mortgage than it would be for anyone else.
However, everyone’s financial situation differs, and so it is very much dependent on your individual circumstances and the requirements of the lender you decide to apply to.
You will need to provide a deposit
The same as someone who is employed, you will usually be required to pay a deposit on your prospective new property. The amount of deposit you may need will depend on the lender and the mortgage offer you have chosen.
The amount of deposit you have can affect the interest rate you are able to apply for on the mortgage. If you have a large deposit and therefore have less of a loan to value ratio on the property, then you potentially could access a mortgage with a lower interest rate.
Can I get a self-certification mortgage?
Since 21 March 2016, all firms offering mortgages in the UK have to comply with the Mortgage Credit Directive, which requires a thorough affordability assessment based on information that has been verified by the lender.
This means that self-certified mortgages are no longer available.
Mortgage offers will vary, and you may wish to shop around to find the best deal for your circumstances. Points to take note of are:
- The interest rate you will pay now and for the life of the loan
- Fees associated with the mortgage
- Penalties for settling the debt early
- The term of the loan (how many years is it over)
- Incentives for taking out the mortgage
- The type of mortgage (fixed, tracker, repayment, interest only etc.)
Using a mortgage broker
If you decide to use a mortgage broker or financial adviser to support you, then you need to ensure that they are registered with the Financial Conduct Authority so that you are adequately protected.
You can find more information on obtaining mortgage advice on the FCA website here.
To check whether a firm you are considering working with is registered, click here to visit the FCA website.
If you found this information useful, you may also want to check out the following:
- How to plan for big life events when self-employed
- Business Relief for Inheritance Tax
- I don’t need a will, do I?
MRA help individuals, businesses and families achieve the best quality of life they can with the resources they have. MRA specialise in corporate solutions, cash-flow analysis, life centred planning and much more.
Business Consultants based in East Sussex we service clients across the South East, Sussex and Kent, including smaller towns such as Ashford, Battle, Bexhill, Bodiam, Brighton & Hove, Cranbrook, Crowborough, Eastbourne, Hailsham, Hastings, Heathfield, Herstmonceux, Lewes, Mayfield, Newhaven, Rye, Seaford, Sevenoaks, Tenterden, Tonbridge and Tunbridge Wells.