After some initial research on the internet you might be thinking lenders have too many hoops to jump through to get a self-employed mortgage and have resigned yourself to life of renting but this doesn’t have to be the case. The truth is that being self-employed doesn’t make mortgage lenders any less likely to approve your application than if you were employed – you just have to know how to prove your income and which lender will work for you.
What is a self-employed mortgage?
There is no such thing, lenders will simply look at all applications, from employed and the self-employed and need to see evidence of how you can repay the loan.
Back before the credit crunch we had a world of “self-certification” mortgages where people could borrow money without the need to prove their income which worked well for those with a slightly more complex income structure but those days are long gone and lenders treat employed and self employed in the same way – simply prove how can you afford it.
Employed V Self Employed
Of course, this is easy for the employed, they have a contracted salary with an employer and can prove income through PAYE with payslips and P60’s. Tax and National Insurance is deducted from pay and a lender can easily see the net income figure and how this works for affordability.
Self-employed income is not quite as straight forward and depending on the company structure will need to be declared and proved in different ways.
For Limited Company Directors most lenders will work on your salary and dividend income. Some will work on the latest year, whilst the majority will take an average of the last 2 years.
For self-employed sole traders, the majority of lenders will take an average of your last 2 years net profit but there are exceptions to the rule and some will work on the last trading year.
It is common for lenders to insist you have been self-employed for at least 2 years but there are some self-employed mortgages that are available with one years trading.
Why use Choice for your self-employed mortgage?
At Choice Mortgage Solutions one of the advantages we have when obtaining self-employed mortgages is that we understand the lenders and their criteria. We will know based on your circumstances which lender to approach and how flexible they will be.
A few other areas to consider for self-employed mortgages are
Longevity of the business – prove future work, show an increasing profit each year
Healthy deposit – the more deposit you can provide the higher the chances of obtaining the loan
Credit Score – as with employed borrowers, a good credit score is essential for a self-employed mortgage.
Electoral Register – make sure you are registered to vote, lenders will include this in their background checks.
If you need advice on a self-employed mortgage, please get in touch or call one of our friendly advisers on 0800 612 8099.