If you’re self-employed, mortgage lenders tend to treat you slightly differently than if you were employed and working for someone else. That’s not to suggest you should be put off trying to get a mortgage when you’re self-employed, it’s just that you will usually need to answer a few more questions and have the proof you can afford the mortgage that you want.
Can you get self-employed mortgages?
While it is possible to get a mortgage if you’re self-employed, you won’t find specific self-employed mortgages – the mortgages you should be looking at are the same as those available to everyone else.
But whether you are employed or self-employed, lenders need to see a stable income, to show that mortgage repayments are both affordable now and in the longer term. That’s relatively easy to do if you are employed, but when you’re self-employed there will be a bit more work involved.
To prove how much you earn, you must have the proper paperwork in place and, of course, a steady income stream.
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What do you need if you’re self-employed and applying for a mortgage?
Most lenders will offer you a mortgage if you can prove you have been generating regular income and have a record of your self-assessment tax returns covering a minimum two-year period prior to your mortgage application.
There is no hard and fast rule when it comes to getting a mortgage as a self-employed person, but there are ways to improve your chances.
Your credit score will affect the likelihood of your mortgage acceptance chances. The same rules that apply to employed borrowers generally apply if you’re self-employed, but you’ll need to have your information up to date and ready to go to prove your financial eligibility to lenders. Because of this, it’s best to understand in advance what lenders want to see though eligibility criteria will vary.
Essential requirements for getting a mortgage if you’re self-employed:
- HMRC tax year overviews from the past two tax years
- other proof of earnings over at least two years, such as certified accounts produced by a qualified accountant, printouts of self-assessment tax returns and SA302 form
- track record of previous, current and upcoming work
- a deposit
- a good credit history
Which mortgage lenders lend to self-employed people?
Most mortgage lenders and banks accept applications from self-employed workers. However, the acceptance criteria that they use can vary. While some may have stricter lending requirements, such as proof of future client work and financial projections, others may be willing to proceed without these in place.
Lenders may also look for consistency in your financial profile. If you can prove steady work over a number of years without too many quiet periods or fluctuations, you could stand a better chance of approval.
Crucially, it’s important that you shop around to make sure that your mortgage is the best you can get for your personal circumstances.
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How long must I have been self-employed to get a mortgage?
If you’ve been trading for more than three years, it’s likely that you’ll be considered without too much hassle if you can provide sufficient paperwork.
If you have less than three years of trading history, then you may be asked to provide slightly more detailed information to prove your viability as a mortgage loan candidate. If you’ve been trading for less than a year, lenders are unlikely to be able to consider you for a mortgage.
How many years of tax returns do I need?
You need at least two years’ worth of self-assessment tax returns when applying for a mortgage if you’re self-employed. There may be a few lenders willing to offer mortgages for self-employed workers with only one year of accounts, but you will likely have to prove your eligibility with financial projections or proof of capital.
It’s worth noting that some lenders calculate the amount you can borrow on an average of the last few years income, while others will look only at the most recent year of trading.
Are there mortgages for self-employed people without accounts?
If you’re yet to complete a tax return for your first year of trading, it’s unlikely that a mortgage lender will accept your application.
There are specialist lenders that serve the self-employed market and may consider you without accounts. However, they may charge a higher interest rate and require additional collateral.
How else could I get a mortgage?
A potential alternative for self-employed people without sufficient proof of income is a guarantor mortgage. Guarantor mortgages use the property or savings of a family member or friend as security on the loan.
The mortgages are more likely to be approved by lenders as the guarantor takes the responsibility for payment if you should fail to keep up, reducing the risk for the lender and opening doors for you.
Are self-certification mortgages still available?
Self-certification mortgages allowed you to declare how much you earn when applying for a mortgage without supplying any documentation as proof.
They are no longer available in the UK following a ban by the Financial Services Authority (now part of the Financial Conduct Authority) in 2011.
Am I penalised as a self-employed person?
It’s true that you will have to provide extra evidence to prove your income, but lenders should not discriminate against you in terms of the mortgage deals they offer you. Most will offer you the same rates as other mortgage borrowers.
Can I get help from a mortgage adviser?
It may be a good decision for you to consider engaging the services of a mortgage adviser. They may better understand the lender application process and can help you gather together what you need. They will also have a good understanding of what lenders are looking for from self-employed individuals, and of the differences between the lenders. But be sure to understand any fees associated with using an adviser.
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Tips for getting a mortgage if you’re self-employed:
- Keep your paperwork and digital records up to date.
- Hire an accountant to assist you.
- Complete self-assessment tax returns and submit them on time.
- Compare mortgages and search the market for the best deals for you
- Don’t overstretch: make sure you have the income to cover mortgage repayments.
- Maintain a healthy credit rating.
- Save a good-sized mortgage deposit.
- Consider using a mortgage adviser.
Can I get a mortgage if I’m self-employed?
Don’t assume that it’s impossible to get a mortgage just because you’re self-employed. And don’t settle for an unfavourable deal because you think you’re less eligible than other borrowers.
If you’ve recently started your business, then make sure you keep all your records in order until you are ready to apply to lenders. Good record keeping and ensuring you have the correct paperwork can save you lots of time and hassle when it comes to filling in an application for a mortgage as a self-employed person.
As long as you can prove your earnings and meet the other criteria lenders look for in borrowers, such as a good credit history, you should be able to secure a mortgage like everyone else.
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