Jamie Elvin explains the mortgage process for the self-employed.
Our experienced and knowledgeable advisers invest time in understanding the financial position of our self-employed property finance applicants. We collaborate with their accountants to ensure accurate and complete financial information, facilitating quick approvals from our network of self-employed mortgage lenders.
Our mortgage advisers prioritise our access to a wide range of lenders, enabling us to find competitive mortgage products for self-employed professionals. Our network covers mainstream mortgage lenders as well as specialist and alternative lenders that are flexible and willing to lend to hard-working individuals.
To discuss your specific circumstances and self-employed mortgage needs in more detail, contact our expert mortgage team today.
What counts as self-employed for a mortgage?
The criteria for what counts as self-employed for a mortgage can vary among lenders, but generally speaking, being self-employed means that you work for yourself and have control over the work you do and how you do it.
Most lenders consider someone self-employed if they own at least 20-25% of a business or are a sole proprietor.
Is it harder to get a mortgage if you are self-employed?
If you’re self-employed, it can be more of a challenge to get a mortgage because you’ll need to prove that you have a reliable income over a sustained period of time. It’s certainly not impossible, though.
Preparation is key when it comes to getting a mortgage, and even more so when you’re self-employed.
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What mortgages are available to those self-employed?
The mortgages available are exactly the same as they are for anyone else. There are no specific ‘self-employed mortgages’ – but the lenders’ criteria and underwriting are significantly different if you work for yourself.
Can I get a mortgage if I only have one year’s accounts?
The short answer is yes, it’s possible to get a mortgage if you’ve only been self-employed for a year. The vast majority of lenders do require a minimum of two or three years of trading history to evidence your income, but some will consider just one year of accounts.
With one year’s accounts, the lender will usually ask for more information. They may ask about your employment before you started your business, as well as for a breakdown of your assets and liabilities. They may also ask for projections from your accountant.
Lenders usually check that the income on your most recent three month’s bank statements is level with the income declared on your accounts from the previous year. Because of that, it’s important to keep your business accounts looking as healthy as possible in the months leading up to your mortgage application.
You may find that you are limited to specialist lenders because of the perceived higher risk. This could mean you will potentially pay higher interest rates and fees, but there are a few high street banks and building societies that will consider you.
If this applies to you, read our guide to getting a mortgage with 1-years accounts.
Can you get a joint mortgage if one person is self-employed?
Yes, it’s certainly possible to get a mortgage if one applicant is self-employed and the other isn’t. Both incomes would be considered for the application, but you’ll need to ensure that you both meet the criteria for the mortgage provider you choose.
The documents that you each need to provide for the application will be different.
Is Buy-to-let available for the self-employed? What’s involved?
Buy-to-let mortgages are typically viewed as ‘self-financing’ where the tenant pays rent to cover the mortgage payments. Because of that, the affordability assessment is mostly based on the rental income from the property.
Some mortgage lenders insist on the customer having a minimum level of income to cover things like rental voids, property maintenance and taxes. This minimum is commonly £25,000, which can sometimes be made up using your earned income and other sources, such as profit on other investment properties you own.
However, there are plenty of mortgage providers that have no minimum income requirements, regardless of your employment status. These lenders will usually require that you own your own property in addition to the one you are looking to mortgage.
The Financial Conduct Authority does not regulate most Buy-to-let Mortgages.
How much can a self-employed person borrow?
Like with any other mortgage application, the amount you can borrow will depend on your specific circumstances and a personalised affordability assessment. Each mortgage lender’s affordability models will be different, and how they treat income is particularly important.
Some lenders may use your retained profits and salary instead of dividends, which can make a huge difference. Some lenders will look to use an average of your last two or three years’ income, whilst others may consider only the most recent year. Again, this can make a massive difference, especially if your income has varied considerably.
As a general rule of thumb, lenders will typically consider lending between 4.5 and 5 times your income. However, the way they assess and calculate that income is just as important as the multiples applied.
What documents do I need when applying for a self-employed mortgage?
The documents required will vary depending on the lender’s criteria. For example, the documents for a limited company director will be slightly different from those for a sole trader.
A sole trader will likely need to provide two or three tax returns and SA302’s to evidence income. If you’re a company director, you’ll need to provide the most recent two or three year’s accounts.
Below is a non-exhaustive list of documents you’ll likely need when applying for a mortgage when you are self-employed:
- Proof of identification and address
- 3 month’s personal bank statements
- 3 month’s business bank statements
- 3 years’ SA302s (Tax calculations) and overviews
- 3 year’s certified accounts
- Accountant projections – Typically for companies with only 1 year’s accounts or vastly fluctuating incomes.
- Accountants reference
How can Strive Mortgages help?
Working with a mortgage broker like Strive Mortgages can be a valuable resource if you’re self-employed and looking to obtain a mortgage. Here are some ways in which a mortgage broker can help:
Access to Specialist lenders: Find lenders that specialise in self-employed mortgages: A mortgage broker can help you find lenders that offer mortgage products specifically tailored to the needs of self-employed individuals. These lenders may have more flexible underwriting guidelines or be willing to consider alternative documentation to verify income.
Provide guidance on documentation: As a self-employed borrower, you may need to provide additional documentation to verify your income and other financial information. A mortgage broker can help you understand what documents you need to provide and how to prepare them.
Help you understand your options: There are many different types of mortgages available, and a mortgage broker can help you understand the pros and cons of each option based on your unique financial situation.
Negotiate with lenders: A mortgage broker can negotiate with lenders on your behalf to help you get the best possible terms and interest rates.
Save you time: Applying for a mortgage can be time-consuming, especially if you are self-employed and need to provide additional documentation. A mortgage broker can help streamline the process and save you time by handling many of the details on your behalf.
Overall, working with a mortgage broker can make the process of obtaining a mortgage as a self-employed individual easier and more efficient. A broker can provide expert guidance and help you navigate the often-complex world of mortgage lending.
Your home may be repossessed if you do not keep up with your mortgage repayments.
For more information on self-employed mortgages, please contact a member of the Strive team, by emailing [email protected] or call us on 01273 002697.
Frequently asked questions about self-employed mortgages
No, self-certification mortgages are no longer available. The FCA outlawed these following the 2008 financial crisis when there were concerns that mortgages were being offered to customers who could not afford them.
For the most part, the process itself is exactly the same as for anyone else. You will access the same products and interest rates. But it’s the underwriting and documents required that will be different.
Preparation is key. If you’re thinking about getting a mortgage at some point in the future, speaking to a mortgage adviser and your accountant at the earliest opportunity is really important.
It could be that speaking with a mortgage broker and understanding how lenders will view your income may influence how you structure your accounts for the year.