Can I get a mortgage if I’m self-employed?
Getting a mortgage if you are self-employed is possible, but you will need to pay closer attention to mortgage lending criteria and jump through a few extra hoops. Here is how you can get a mortgage if you’re self-employed.
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Is it possible to get a mortgage if you’re self-employed?
Yes! It is possible to get a mortgage if you’re self-employed.
Whether you are employed or self employed, lenders need to see stable income, to show the repayments are both affordable now and in the longer term. If you are employed, that’s relatively easy, but for self-employed individuals 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.
Top tip: To secure a mortgage as a self-employed person you will need to prove how much you earn and jump through a few extra hoops, so understand what lenders want to see in advance.
What do you need to get a mortgage if you’re self-employed?
Most lenders will be happy to 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 rating will impact the likelihood of your mortgage acceptance chances. The same rules that apply to employed borrowers generally apply, but with the added burden to prove your financial eligibility to lenders.
- Two years’ self-assessment tax returns
- A track record of regular work
- A deposit
- A strong credit history
Which banks lend to self-employed people?
Most mortgages accept applications from self-employed people. 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 things in place.
It’s important that you shop around and compare mortgage deals to make sure that your mortgage is the best you can get for your circumstances.
Read on for more of the essential questions to understand before you start applying.
Top tip: Lenders will 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 will stand a better chance of approval.
How many years do I have to be self-employed?
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 expect to have to go above and beyond to prove your viability as a mortgage loan candidate and, if you’ve have been trading for less than a year, lenders will be unlikely to offer you a deal at all.
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 you a deal with only one year of accounts, but you will likely have to prove your eligibility with financial projections or proof of capital.
Top tip: Some lenders calculate the amount you can borrow on the last few years of income while others will look only at the most recent year of trading.
What can you do if you don’t have 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 exist to serve the self-employed market and these institutions may consider you without accounts, however they may be more expensive and require additional collateral.
How else could I get a mortgage?
An 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 from the Financial Conduct Authority (FCA) in 2011.
Am I penalised as a self-employed person? Do they lend me less?
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?
It may be a good decision for you to consider engaging the services of a mortgage advisor. They will understand lenders application process and help you gather together what you need. They will have a good understanding of what lenders are looking for from self-employed individuals, and differences between the lenders. Be sure to understand any fees associated with using an advisor
Tips for improving your chances:
- Keep your paperwork and digital records up to date.
- Use an accountant to assist you.
- Complete self-assessment tax returns and submit them on time.
- Compare deals and search the market for the best deals.
- Don’t overstretch; make sure you have the income to cover mortgage repayments.
- Maintain a healthy credit rating.
- Save a healthy deposit.
- Consider using a mortgage advisor
Mortgages for the 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. Paperwork and good record keeping are key to success when it comes to accessing the best mortgages for self-employed people.
As long as you can prove your earnings and meet the other criteria lenders look for in borrowers, such as a strong credit history, you should be able to secure a mortgage like everyone else.
Jim brings together unique data insights, contextual knowledge and thought provoking themes, to shed new light on important issues affecting both UK businesses and individuals. Read more