Self-employed MORTgAGe Bromley

The term self-employment covers a range of circumstances. You could be registered as a contractor, sole trader or run your own company as a company director. 

If over 20% of your income is derived from these activities, then lenders can class you as self-employed for the purposes of a mortgage application. 

If you are a contractor, you may be required to provide evidence of confirmed contracts. Company directors will need to show proof of dividends or retained profits. 

You will also need to provide accompanying SA302 forms, which are provided by HMRC. They confirm how much income you have reported in a particular tax year. If you have submitted your information to HMRC online, then you should be able to print out your SA302 forms directly from the online portal. 

As part of the necessary affordability checks, you will be required to provide bank statements showing expenditure. Depending on the lender, this could be anything from three months to a year’s worth of statements. 

You will also need to provide proof of deposit. In addition to the amount of money that you have, you will need to state where it has come from. For example, you may have saved up from your earnings, or it may have been gifted to you. If the money was a gift, you may have to provide evidence that you aren’t required to pay the money back, otherwise, it will be classed as an expenditure. Additional committed expenditure can impact the amount you can borrow. 

Mortgage lenders will require you to provide proof of income. Usually, they will ask for up to three years of accounts. If you haven’t had your financial reporting done by a professional accountant, you may need them to provide you with financial accounts in the required standard. If you tend to do your accounts yourself, you may need them looked over and certified by an accountant before the lender is willing to accept them. 

If you are a contractor, you may be required to provide evidence of confirmed contracts. Company directors will need to show proof of dividends or retained profits. 

You will also need to provide accompanying SA302 forms, which are provided by HMRC. They confirm how much income you have reported in a particular tax year. If you have submitted your information to HMRC online, then you should be able to print out your SA302 forms directly from the online portal. 

As part of the necessary affordability checks, you will be required to provide bank statements showing expenditure. Depending on the lender, this could be anything from three months to a year’s worth of statements. 

You will also need to provide proof of deposit. In addition to the amount of money that you have, you will need to state where it has come from. For example, you may have saved up from your earnings, or it may have been gifted to you. If the money was a gift, you may have to provide evidence that you aren’t required to pay the money back, otherwise, it will be classed as an expenditure. Additional committed expenditure can impact the amount you can borrow. 

Your income will be assessed in line with a lender’s specific criteria and how your self-employment is set up.

For example: 

• Freelancers/sole traders – net profit
• Partnerships – net profit (your share thereof)
• Contractor – day rate (annualised)
• Limited company – salary, dividend payments and retained profit

Lenders will also use an average of your reported income. For example, if a lender asks for three years of accounts. They will add your income for those three years together and then divide it by three, rather than taking the last year’s figure. So, if over the last three years your income was £50K, £50K and £70K, then the lender will average this out for an income of £56.6K per year.

Obtaining a mortgage requires a host of financial and affordability checks. For self-employed people, it means even more financial hoops to jump through. But there are some things that you can do to increase your chances of being accepted. 

Put down a larger deposit – the more deposit you can put down the less money you’ll need to borrow and the better the mortgage rate you will get. It really is worth trying to save up more for your deposit as it could improve your chances of being accepted and save you thousands of pounds in the interest of the repayment term. 

Improve your credit score – correct any mistakes on your credit report and pay off as much debt as you can. Close any old accounts. Ensure that you are on the electoral roll at your current address. 

Approach specialist lenders – in theory, self-employed people have the same access to mortgage products as everybody else. Yet there are some lenders who specialise in mortgages for the self-employed. Often, they are better placed to understand the ins and outs of being in self-employment and can offer you mortgage products that others would not. 

We do the legwork for you and help you get your finances and paperwork in order. A mortgage application rejection can adversely affect your credit score so you want to be confident you’ll be accepted before you apply.

As we’ve discussed, getting a mortgage when you’re self-employed can be more difficult than a standard mortgage. That’s where Momentum Mortgages can help. We know how to give you the very best chance of securing a mortgage. Our relationships with lenders mean that we know which are more welcoming of self-employed people, who is flexible on the number of years accounts needed and who can give you the best rates. 

We do the legwork for you and help you get your finances and paperwork in order. A mortgage application rejection can adversely affect your credit score so you want to be confident you’ll be accepted before you apply.