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For the Self-Employed it is not necessarily harder to get a mortgage; it’s really just a question of having good records to prove your income. If your credit score is positive and you’ve had reliable mortgage advice, finding a mortgage shouldn’t be a problem.
Lenders will view you as Self-Employed if you own more than 20% to 25% of a business that is your main source of income. You could be a sole trader, company director or contractor.
Proving your income may involve different things depending on your business set-up. Each lender may ask for slightly different information or documentation, but you will always be asked to provide recent bank statements – either personal, business or both.
Your business will need to have been operating for at least 12 months, but ideally two to three years.
If you’re a Sole Trader, mortgage lenders will usually want to see at least two year’s worth of accounts, and will ask for your SA302 form from HMRC. This is the self-assessment tax document confirming your income and expenses.
Many lenders will calculate your average income over the past two years. Others might just look at the most recent year’s income.
If you’re the director of a limited company, you may have a few sources of income. Most company directors take a basic salary supplemented by dividend payments from the business. If you choose to leave profit in the company, it’s important to find a lender that will take your retained profit into consideration.
You will need to provide two to three years’ certified accounts, stating salary and dividends. It’s helpful to have at least one year’s SA302 year-end tax calculations from HMRC too.
Proving your income in a partnership
If you’ve gone into business as a partnership, mortgage lenders will assess your income as a share of the overall net profit. Again you will need to supply company accounts and SA302 forms to indicate your income.
If you have been contracting for a long time, lenders may take an average of your income over the last 2-3 years. This is less likely if your earnings vary dramatically year to year, though. In this case they often look at the most recent year.
Some lenders may calculate your annual income based on your day rate, but you might need evidence of a 12-month contract for this to be an option.
Company accounts and SA302 forms are usually required.
In the past, many Self-Employed people got round the challenges of evidencing their income by taking out ‘self-certification’ mortgages. These mortgage products allowed borrowers to state how much they earned without providing documents as proof.
However, the Financial Conduct Authority ultimately ruled that these mortgages were too risky for both borrowers and lenders, so it outlawed them in 2011.
The process for a Self-Employed mortgage application is largely the same as for someone in an employed role. Because of the different nuances across each lender, though, it can be helpful to get advice from a Mortgage Broker.
A mortgage calculator can give you an idea of how much you could borrow and what the monthly repayments might be. But, ultimately, getting a fair deal comes down to finding a lender with the most positive view of your income. A broker will know which lenders will suit your situation best.
For the widest choice of mortgage products and the lowest interest rates, you need a good deposit of 10% or more, a decent credit rating and a couple of profitable years’ business.
The best way to get mortgage approval is to be certain that you fit the lender’s criteria and have all your documentation ready. That includes making sure you have a valid passport for ID.
A Mortgage Broker will take away a lot of the stress. We’ll do all the research for you, check your credit and find the most appropriate lender. We’ll then help you apply for a mortgage that will suit you. Contact us today for an initial chat about your plans.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP THE REPAYMENTS ON YOUR MORTGAGE