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Tips on how to get a mortgage if you are self-employed

MORTGAGES | 25.03.2021

With the rise of the ‘gig-economy’ and more people than ever working freelance or deciding to become self-employed, we look at how this may affect your chances of being approved for a mortgage should you be considering going it alone. 

Is it more difficult to get a mortgage if you are self-employed? 

It is not more difficult, but it can be more of a challenge as you’ll have to prove you have a reliable income. If you are employed, your monthly income is steady as you know how much you will be paid month by month. When you are self-employed, especially as you start to build up your business, that sometimes isn’t the case. However, there are numerous ways to prove to a mortgage lender that you have a good solid income when you are self-employed – you may just need to jump through a few extra hoops. 

What does a lender count as self-employed? 

Lenders will categorise you as self-employed if you own a percentage of a business, usually 20% and above. But also, if you are a sole trader, company director or a contractor. 

How do you get a self-employed mortgage? 

In theory, if you are self-employed and looking to take out a mortgage on a property, you should have the same access to a wide range of mortgages just like everyone else. You will however have to pass lenders affordability tests as any other borrower would do.  The difference is, as there is no employer to confirm the amount you earn, those who are self-employed are required to provide a lot more evidence about their income than employed people. Since the financial crash in 2014, banks lending any type of money have been tightened and therefore they will need to be convinced that you can afford the mortgage before they agree to lend you an amount of money. 

What do I need to show as proof of my income, to be approved for a self-employed mortgage? 

Documents you will need to provide when you apply for a self-employed mortgage are: 

  • Two or more years of certified accounts 
  • SA302 forms or a tax year overview (from HMRC) for the past two years or more
  • Evidence of upcoming contracts (if you are a contractor) or retained clients
  • Evidence of dividend payments or retained profits (if you trade as a company)
Also, lenders prefer to have any accounts to be prepared by a qualified, chartered accountant, so if you do look after your own accounts, it is advisable to appoint one. It is likely the lender will focus on the average profit you have made over the last few years as the first step to accessing your suitability.  If you have only just set up or started out and have less that one year of accounts, you may find it a challenge to convince a lender to provide you with a mortgage. But it is not impossible. This is where any contracts you have in place that provide evidence of regular work or bank statements showing regular payments come into play to help with your application. In addition to your income, also ensure you have a healthy deposit and your credit history is good. This will all help your chances of securing that mortgage. But be prepared though that your choice of mortgages may be more limited. 

As well as all this, you’ll also need to provide the standard information that everyone does, namely: 

  • Passport 
  • Driving Licence 
  • Council Tax Bill 
  • Three months of utility bills 
  • Six month of bank statements 

Depending on your circumstances, lenders may also ask you for further information which may cover: 

  • Household bills 
  • Commuting costs 
  • Childcare 
  • Socialising 
  • Any credit or store card repayments 
  • Loan repayments 
  • Car finance payment 

Is there anything more I can do to boost my chances? 

There are a few more things that you could consider doing to improve your chances further, such as: 

  • Save as much as you can for your deposit 
  • Make sure you have a good credit rating 
  • Ensure you are on the electoral roll 
  • Speak to a professional mortgage broker to help with your search 
There is a perception that securing a mortgage for the self-employed is harder, it isn’t, you just need to prepare a little more and ensure that you have all your ducks in a row. For more information or to speak to one of our expert advisors contact us, or call us at 0345 305 2540
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