Like with any mortgage application, most mortgage lenders want to know that you can afford the repayments. But when you are self-employed, you often have to supply more information to prove that you are responsible with your finances, have a consistent income and that you will be able to reliably cover your repayments.
It can be more challenging to apply for a mortgage when you are self-employed but is not impossible. We have created this guide to provide you with information on how to prepare yourself for applying for a self-employed mortgage, based on some commonly asked questions.
What mortgages are available to self employed people?
Theoretically, a self-employed person should have access to the same types of mortgage as everyone else.
The type of mortgage you ultimately choose depends on many factors, including how much a lender is willing to lend, what the interest charges will be and also on your personal circumstances, as some mortgages may be more beneficial to you than others. For example, an ‘offset mortgage’ is where you hold a savings account with the same building society or bank, which you can add money to at any time in order to offset your interest payments but also use as a useful account for saving for your end of year tax bill.
Speak to one of our mortgage advisors so they can help to find you a selection of mortgages that are best suited to your personal circumstances and to try and get you the best deal.
Is there a limit to how much self-employed people can borrow for a mortgage?
There is not a limit, as the amount you can borrow depends on how much you earn and how a lender will treat those earnings. This can be different depending on how you take drawings from your business and this is where a mortgage adviser can really help. Two lenders can treat self-employed applicants very differently and you need someone with the knowledge and experience to know which lender will like your individual circumstances.
How long do you need to be self employed to have a mortgage?
There is no set length of time you need to be self-employed for to apply for a mortgage but there is an average minimum – though this can also vary between lenders. Some lenders may ask for one year of paperwork to prove your income, however most will ask for at least 2 or 3 years to show a consistent income. If you can only provide one year of records, you may still be eligible for a mortgage but you may not be offered the better rates, compared to if you were to provide many years of evidence of your contractor or self-employment history.
It also helps if you are generally good at managing your finances and can provide proof of this with bank statements from the previous few years to show that you are reliable when it comes to paying the bills.
What records do self-employed people need to provide as part of their mortgage application?
It is best practice to maintain good records in your self-employment generally, but it also proves very useful if your financial business records are clear and up to date for when you apply. You will be asked to provide evidence of your income in the form of certified accounts for the past two or more years (if possible), however, different lenders may ask for slightly different calculations such as net profit, or your salary and dividends, or an entirely different method of calculation. This may vary depending on how you take your salary as a self-employed person.
You will also be required to provide a tax year overview of the past two to three years (if possible and required), plus at least 6 months of bank statements and sometimes evidence of upcoming contracts to show that you have guaranteed income in the future.
Your mortgage adviser can help you to ensure you have all the correct paperwork for your application and it may also be worth speaking to an accountant, if you do not already use one, to help make sure your records are in order before submitting them to your prospective lender.
How can I improve my chances of getting my self-employed mortgage application approved?
There are a number of things you can do to improve your chances of being approved for a mortgage when you are self-employed.
- Prove your income for at least the past year – the longer track record you can provide, the better
- Be mindful of holidays and how this may affect how your average annual income is worked out
- Check your credit score and take steps to improve it
- Keep good records
- Make sure your accounts are up to date
- Approach lenders when you have a contract
- Manage your outgoings
- Build up a sizeable deposit
- Look beyond high street banks
- Work with a mortgage adviser
- Be aware of all the different mortgage options available to you, such as offset mortgages, for example.
I’m self-employed, how can Choice Mortgage Solutions help?
Being self-employed will not stop you from purchasing your dream home, but it will most likely involve more of your time and efforts to get there. Our friendly, knowledgeable team at Choice mortgage Solutions can help find the best mortgage deal for you and help to educate you about what is available when you are a contractor or self-employed. The sooner you ask, the sooner you can begin taking steps towards building a strong application when it comes to applying for your mortgage. Get in touch via the website, drop us an email at info@choicemortgagesolutions.com or call us on 0800 612 8099 and start planning for your future today.