Getting a mortgage can be a source of stress for anyone, but it can be particularly daunting if you’re self-employed. However, there are options for you so there’s no need to panic. Here, we share how to get a mortgage if you’re self-employed so you know what to expect from the process.
What do mortgage lenders count as self-employed?
Mortgage lenders will see you as being self-employed if you own more than 20-25% of a business that provides your main income. You could be a sole trader, director, or contractor who has set up a limited company.
The reason that being self-employed makes applying for a mortgage different is that you don’t have an employer to prove your income which makes it harder to determine your affordability. This doesn’t mean that you won’t be able to get a mortgage, just that you’ll be required to supply additional evidence in comparison to someone who isn’t self-employed.
Before 2014, self-employed individuals could self-certify themselves for mortgages without having to provide proof of income. This is no longer an option as it was found that people were borrowing more than they could afford which eventually caused issues for both the borrower and lender.
What evidence will I need to provide as a self-employed individual?
The evidence you’ll need to provide to get a mortgage if you’re self-employed will depend on your self-employment type. In all cases, you will need at least two years of certified accounts and SA302 forms or a tax year overview from HMRC for the past two to three years. If you’re a director you’ll also need to provide evidence of dividend payments or retained profits, and as a contractor you’ll need evidence of upcoming contracts that you’ve secured.
This documentation will help potential mortgage lenders to work out how much you can afford to borrow. The amount they decide on may differ between lenders, so it’s always worth asking a mortgage advisor to assist you in finding the right option. Many lenders prefer it if accounts are provided by a qualified accountant rather than put together yourself as they believe this to be a more reliable representation.
Is there any additional documentation I’ll need?
Whether you’re self-employed or not, there will be documentation that you need to provide to get a mortgage. This includes proof of identity, such as your passport, driving license, and utility bills. You’ll also typically be asked for six months of bank statements to help lenders to determine your affordability. They’ll look at your outgoings to see if you’ll have the funds to make your mortgage payments each month.
The types of things that they’ll take into account will be the amount that you spend on household bills, holidays, socialising, and hobbies. They’ll also consider any finance that you have or credit card repayments that you make.
Will my mortgage be more expensive?
If you can prove your affordability, you should have access to the same range of mortgages as people who aren’t self-employed – so it won’t necessarily make it more expensive. The deposit amount you have and your credit score will have an impact on the cost of your repayments.
The larger your deposit the less you’ll have to borrow and the lower your loan-to-value ratio will be which reduces your level of risk in the eyes of lenders. You should check your credit report to see if there are any issues that you can fix as this will help with your application.
Should you be unable to secure a mortgage with a mainstream lender and have to opt for a specialist option you might find that your mortgage will be more expensive as specialist lenders often are. However, if you can provide the necessary paperwork, prove your affordability, have a high credit score and a good deposit, it’s unlikely that you’ll have to go down this route.
If you’re self-employed and looking for a mortgage, or are struggling to get accepted by a mainstream lender due to your employment status, contact our team of mortgage advisors today.