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Can You Re-Mortgage If You’re Self-Employed?
Re-mortgaging as a self-employed individual might seem daunting, but the process is largely the same as it is for those in traditional employment. A common misconception is that obtaining a mortgage while self-employed is significantly more difficult, but in reality, it’s just a case of providing additional evidence of your income and financial stability.
Lenders may have different criteria when assessing self-employed applicants, and while some are stricter, many are open to working with business owners, freelancers, and contractors. Even if your income has changed since your original mortgage application, there are still plenty of competitive options available. Understanding how the process works, what lenders require, and how to prepare can make re-mortgaging as a self-employed individual much smoother.
Benefits of Re-Mortgaging
Re-mortgaging can offer a range of benefits, whether you’re looking to save money, access better mortgage terms, or release equity for other financial goals. Many homeowners assume that staying with their current lender is the easiest option, but in reality, switching lenders can unlock better rates and more favourable conditions. Some of the key reasons people choose to re-mortgage include:
- Lower monthly repayments – Securing a better interest rate can help reduce your mortgage payments.
- More flexible terms – You may want to adjust your mortgage duration or switch to a different type of product.
- Borrowing more money – Releasing equity can help with home improvements, debt consolidation, or investing elsewhere.
- Adding or removing a borrower – You might want to change ownership structure due to a life event, such as marriage or divorce.
- Avoiding the standard variable rate (SVR) – When a fixed-rate mortgage deal ends, your lender will move you to a potentially higher SVR, making it essential to find a better deal.
Exploring the full range of re-mortgaging options can help you find the best possible financial solution for your circumstances.
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When Is the Best Time to Re-Mortgage?
Timing your re-mortgage correctly can save you money and hassle. The most natural time to re-mortgage is when your current fixed-rate mortgage deal is coming to an end. If you do nothing, your lender will move you to their standard variable rate (SVR), which is often significantly higher than fixed-term rates.
However, re-mortgaging before your deal ends is also possible, though it may come with early repayment charges. If interest rates have dropped significantly or your financial circumstances have changed, paying an early exit fee could still be worth it if it means securing a much better rate.
Lenders typically allow borrowers to apply for a new mortgage up to six months in advance of their current deal expiring. This means you can secure a rate that aligns with your term ending, ensuring a smooth transition without paying more than necessary.
How to Prepare for a Re-Mortgage
Preparation is key when it comes to re-mortgaging, particularly if you are self-employed. Because lenders require additional proof of income and financial stability, it’s best to start preparing at least 3 to 6 months before your intended completion date. This allows ample time to gather documentation, assess your options, and address any issues that might impact your mortgage application.
Some essential preparation steps include:
- Gathering financial documents – You will need to provide proof of income, tax returns, and business bank statements.
- Reviewing your credit score – Ensuring your credit report is in good shape can help you secure better rates.
- Speaking to a mortgage broker – A broker can help assess your situation, find the most suitable lenders, and guide you through the application process.
- Timing your accounts strategically – If you’re due to file a tax return or update business accounts, it’s worth discussing with your broker in advance, as this can impact mortgage affordability calculations.
Documents Needed for a Self-Employed Re-Mortgage
Self-employed applicants must provide additional financial records to verify income stability. The specific documents required may vary by lender, but typically include:
- Three months’ business bank statements – To show cash flow and financial stability.
- For sole traders: Two years of SA302s (tax calculations and overviews) to verify income.
- For company directors: Two years of company accounts and/or an accountant’s certificate to assess business profitability.
Providing clear and well-documented financial records will increase the likelihood of mortgage approval and securing the best possible rates.
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How Much Can You Borrow?
Lenders typically calculate borrowing limits based on income multiples. For self-employed individuals, borrowing capacity is usually around 4.5 to 5 times annual income, but in some cases, applicants may secure up to 5.5 or even 6 times their income.
The amount you can borrow will depend on factors such as:
- Your taxable income or net profit.
- Lender policies and risk assessments.
- Your credit history and overall financial stability.
How Is Self-Employed Income Calculated?
Lenders assess self-employed income differently from salaried employees. The general approach includes:
- Averaging the last two years’ income – If income has been stable or increasing.
- Using the latest year’s income – If your income has decreased, lenders may use the most recent figure.
What Income Is Considered?
- Sole traders: Net profit (before tax, after expenses) is used.
- Limited company directors: Salary and dividends OR salary and company profit, depending on lender policies.
How to Improve Your Chances of Getting a Re-Mortgage
To boost your chances of securing a favourable re-mortgage deal, consider the following steps:
- Maintain a strong credit score – Pay bills on time and manage credit responsibly.
- Keep accurate financial records – Ensure tax returns and accounts are up to date.
- Avoid large unexplained business expenses – Lenders prefer to see stable and predictable income.
- Work with a mortgage broker – Specialist brokers understand self-employed applications and can find lenders with favourable terms.
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What If You Can’t Re-Mortgage?
If your affordability assessment falls short, you may still have options. A product transfer with your existing lender can be a good alternative, as this involves fewer affordability checks and can help you secure a competitive rate without switching lenders. However, it’s always best to compare the entire market before making a decision.
How a Mortgage Broker Can Help
Navigating the re-mortgaging process as a self-employed borrower can be complex, but Strive Mortgages is here to help. Our expertise in self-employed mortgage applications ensures that we match you with the most suitable lenders and secure the best possible deal tailored to your circumstances.
FAQs
Yes, a solicitor is required, but many lenders cover the legal costs as part of the deal.
If not covered by the lender, fees typically range from £300 to £500
On average, re-mortgaging takes 4 to 5 weeks, depending on solicitor processing times and document submission speed.
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