If you are someone that is Self-Employed and often feels unsure of what the best options are for you when it comes to your mortgage and finances, fear not. We’ve got all the answers to your worries and woes below.
What if I only have one years of accounts?
When it comes to getting a mortgage with one years accounts, it is possible, it can be harder as lenders like to see two to three years of accounts. There are certain lenders out there who will consider self-employed mortgage applicants with only a years’ worth of accounts. It is becoming more and more common to become self-employed or freelanced and lenders are moving with the times and becoming more flexible too.
It is possible but they are specialist lenders, which means that your options can be limited. Typically it will help if you have been in a similar role to the self-employed role you are in now before you went solo.
You can ask for an income projection which is when an accountant will estimate how much you will earn in a year and provide it to the lender. You need to make sure you have the correct documents whether this is accounts or self-employed assessments alongside your SA302 forms.
Is Buy to Let available for the Self-Employed?
A buy to let mortgage is a commercial mortgage based on the rental income coming into the property. Most high street lenders want to see that you are on at least £25,000 before allowing you onto this type of mortgage. They look for a minimum income requirement to ensure that you can cover times when your rental property is empty or rent isn’t being paid.
You need to consider whether your income is stable enough to take out a buy to let mortgage. The affordability checks on buy to let mortgages are slightly different and can be somewhat easier to pass than residential mortgages.
How do you prove your income as Self-Employed?
You will need to provide documentation to prove your income to lenders. If you cannot prove that you can make the monthly repayments on your mortgage then you will be rejected. If you decide to over declare and cannot afford the repayments on the mortgage then your home may be repossessed.
It is important to have a good credit score by ensuring your finances are in check. Try to make sure you are prepared before you apply for a mortgage, it can be a lengthy process, and mortgage lenders will deem you high-risk if you show a bad credit rating.
If you are a sole trader you will need the last two years of SA302’s and self-assessment forms if you can, if not you may need a specialist lender. You might need a chartered accountant to generate these for you depending on the lender you choose.
You will need to provide finalised accounts as well as any dividends you have tied up in the business. Some lenders will not look at money tied up in the business as income so it is important to find the right lender for you.
You will need to provide three months’ worth of bank statements as well as any business accounts, Ever since the pandemic lenders are checking to see how well businesses have been coping and will require business accounts.
If you have any money tied up in the business or retained profits and want these to be taken into account then you may need to source a specialist lender for your situation and needs. It would be worth getting in touch with an authorised and regulated Mortgage Broker who has access to the independent mortgage market.
What if one applicant is Self-Employed for a joint mortgage application?
It doesn’t make that much of a difference if one of the applicants for a joint mortgage is self-employed. The difference is in how each of you are proving your income to the lender, PAYE applicants will have a clear payroll history.
Lenders have different risk appetites which will affect the criteria you have to fit, what is meant by this is you will have to prove to them you are not a high-risk borrower. Lenders will have different ways of doing affordability checks which is why Mortgage Brokers can be useful to find the right lender for your wants.
How does Remortgaging work for the Self-Employed?
One of the biggest considerations when it comes to the end of a mortgage is where to go next, what to do next, and the next affordability check. When you get to the end of your mortgage term you will either have to stay with your current lender or remortgage with another lender.
You need to take into account whether you should stay or leave, you should consider costs, and whether you will pass the affordability checks again. You will need to provide all of those documentations again.
Remortgaging is mainly about making sure there is enough self-employed income there to afford the mortgage you are currently on. It is about working into remortgaging with as much planning as you can, ideally, you should prepare a year before your term ends.
When it comes to self-employed workers, you can write a lot of expenses off when doing your tax assessments, yet sometimes this will be worse for your application than better. It is best to get in touch with a Mortgage Adviser a year before the end of your mortgage and before you have filed taxes so that when you do come to remortgage, there is the evidence there needed to be able to.
Product transfers generally don’t require any evidence of income again as it is the same lender who has already checked your income and can see how well you have paid back your mortgage over the time you have been with them. You will just be changing the rate that you are paying, it can be an easier and quicker way to carry on paying your mortgage, but it isn’t always the cheapest option.
What is a Self-Certification Mortgage?
There is no such thing as a self-certification mortgage anymore, it used to be a route for some self-employed to declare more than they were earning. This caused a lot of mortgages to be taken out that weren’t affordable, so the Government scrapped these a few years back.
How can a Mortgage Broker help?
As Self-Employed people you will have to declare your earnings, it is important to keep in mind how much you earn will affect how much you can borrow. We can help to make sure you have declared your earnings properly and that you have included any income to ensure you get the mortgage you are after.
We will listen to your circumstances and point you in the right direction towards mortgage products that are a fit for your needs. You can get in contact with a member of the team today or book a strategy call to discuss where you are at and to learn more about what we do.
Momentum Mortgage is a registered office made up of experts, we are regulated by the Financial Conduct Authority meaning we are qualified to give you the advice you need.
Momentum also has a mortgage calculator that can give you a rough idea of what mortgages you may be able to be accepted onto. It is a rough guide towards affordability too, you need to make sure you put in the correct figures too.