Don’t assume you’re out of luck when it comes to being self employed and owning your own property. Applying for a mortgage is achievable, but you may have to jump through more hoops than a regular buyer when being considered for a mortgage.
You may not be aware that there’s actually no such thing as a self employed mortgage. If you’re in self-employment, you’ll need to apply for a regular mortgage that’s open to those in corporate employment. You’ll have to provide more documentation, which can make getting a mortgage slightly more challenging; but not impossible. This just means that lenders need more proof that you’ve control over your finances.
You’ll need to provide certain information on your finances and spending habits for lenders to assess you as a risk. This information will include a detailed record of your accounts and your credit score. Lenders will generally work out how much they can offer you from how much profit you’ve made within the past few years.
Do speak to your current lender if you’re now self employed and want to remortgage or move house.
How will a mortgage lender use your evidence?
Just like if you were employed by a company, a mortgage for self employed people uses the same process. You’ll need to present statements to prove how much you’re earning. Most mortgage providers will want to see at least two years’ worth of bank statements or tax returns. The more you can deliver the better, as a mortgage provider will assess how much of a risk you are to lend to depending on the steadiness of your income. They will perform credit checks to work out whether you can afford the mortgage repayments. If you flag as a big risk, the harder it will be for you to get a fair mortgage, or, in some cases, a mortgage at all.
Gauges for self employment
There are three main types of self employment categories that your business can fit into. Although, you should be able to get a mortgage with any, you may have to provide different information depending on what type of self-employment gage you fall into.
- Sole trader: if you are a sole trader you are the exclusive owner of your business, which means you’re liable for all profit and loss. As a sole trader you should be fully aware of what goes in and out of your business by staying accountable for all business records. Keeping up-to-date records is extremely important as lenders will assess profits accordingly. With HMRC removing the printed evidence of the SA302 tax calculation in September 2017, you’ll need to use the self assessment tax return as formal evidence. A mortgage broker should be able to assist with any other types of forms you may need.
If you’ve left employment to work as a contractor within the same industry, you’ll need to provide evidence of upcoming work. This will show that your level of income can be maintained.
- Private limited company: as you may be aware, setting up as a private limited company means your business and personal affairs are kept separate. A company of this kind will usually have shareholders (up to 50). If you’re the company director, you’ll more than likely pay yourself a basic salary plus dividend payments. This basic salary, or income amount, will be used by lenders to determine if you can afford the mortgage repayments. If this amount is too low, it’ll be reflected in how much money you’ll be able to borrow.
- Partnership: if you’ve set up your business with someone else, mortgage lenders will weigh up each partner’s share of the overall profit. This means it’s extremely important that your accounts are as accurate as possible when it comes to profit and loss. Your annual income must easily be seen.
What you’ll need to provide to get a self employed mortgage?
- A good credit score: it’s good to note that a lender will not just credit check you, they’ll also check the credit score of your business, through your business address. Before applying for a mortgage it’s best you tie up any loose ends in your personal finances and throughout your business, as this can negatively impact your chances.
- History of accounts: in order for lenders to accurately assess you as a risk, you’ll need to provide an extensive amount of information. You’ll need a record of at least two years of accounts and any work you have upcoming. The more evidence you can provide the better your chances will be.
- Healthy deposit: it’s not a secret that you’ll need a healthy deposit to get a mortgage. A larger deposit looks more attractive to lenders, which means they will generally offer a more competitive mortgage that has a lower interest rate. A good chunk of equity can help support a mortgage application too.
What can help with getting a self employed mortgage?
- Mortgage broker: it can be a good idea to acquire a mortgage broker for support. They’re the experts and will be able to search the competitive market for you. They’ll be able to tell you which providers will offer the best rates depending on your circumstances.
- Accountant: some lenders will not accept evidence you’ve provided unless it has been detailed by a certified or chartered accountant. Before applying for a mortgage, it can be a good idea to hire an accountant to make sure all your outgoings and tax returns are in order.
- Up-to-date-accounts: an accountant will do all this for you, but do make sure your accountant knows your affairs need to be in order for you to apply for a mortgage. The size of mortgage you’ll be able to get is primarily based on the amount of earnings you have. Some accountants may favour reducing your basic income to reduce the amount of tax you need to pay. As lenders look at how much you’re earning, this will reduce the amount you are able to borrow.
- A larger deposit: If you can afford to provide a large deposit, at least 20%, it can increase your chances of getting a mortgage. Especially if your history of work is not that extensive.
If you don’t have the above credentials, some mortgage lenders will still consider your application if you can provide a track record of regular work and any work you’ve got scheduled for the future. You may find that the rates of interest will be higher if you can’t provide two years’ worth of accounts.