Why are self-employed people put off applying for a mortgage?
Self-employed individuals often hesitate to apply for a mortgage. There seems to be a genuine belief that buying a house and applying for a mortgage is harder if you’re self-employed. Also, some self-employed people are likely to be operating with the mindset that they’ll automatically be rejected, so why bother trying?
Our advisers here at Right Mortgage UK have arranged a multitude of mortgages for self-employed individuals: and some of them quite definitely expected to be unsuccessful when we started the process. So we wanted to put together a guide for you of what to expect when applying for a self-employed mortgage; because if we can help other people, then we can probably help you too.
What can we do to help?
Here are our top tips for a successful self-employed mortgage application.
- Know what you can afford to pay back, and work out in advance what your monthly mortgage spend should approximately be. No lender is going to approve you for a mortgage that costs more than you can afford to pay back, so work out in advance what a comfortable monthly repayment amount would be and then speak to our advisors who will look at what borrowing amount that equates to in mortgage terms.
- Know your credit score, and look at ways to improve it pre-application. All of the online credit score sites contain tools that show you how to improve your credit score, and it’s worth investing some time a few months ahead of a mortgage application to make sure your credit score is as good as it can possibly be. This can greatly improve your chances of getting a good mortgage offer.
- Know your deposit level. A bigger deposit will not only get you access to a wider choice of houses, it will also give you access to a wider pool of mortgage lenders too.
- Know what paperwork you will need to show. Self-employed workers are sometimes asked by mortgage brokers and lenders to provide more proof of income than employed workers: however, the information you’re asked to provide is neither difficult nor time-consuming to find. You’ll be asked to provide the standard information: proof of ID, proof of funds for your deposit, bank statements, utility bills, payslips if you get them; and you’ll also be asked to provide your HMRC tax returns (Your SA302 forms) and if you’re looking for a Limited Company Director mortgage; your submitted accounts and possibly a letter or proof from your accountant (this can be done during the application though so the accountant knows what’s expected from them, depending on the lender that’s chosen.
- Know your timescales. By which we mean, know how long you’ll have to have been trading as a self-employed individual/entity for. A typical rule of thumb here is that you’ll need at least one year’s accounts, and to have access to the maximum possible number of lenders you’ll need at least three years accounts. Bear in mind that you will be able to start talking to our advisers before your first year ends to start getting information together and then show your earning potential to that year end.
- Know your own mind. If you’re serious about finding a mortgage because you’re ready to buy a home, we’re serious about helping to make sure it’s the best possible offer for you. Our team of trained professionals are only a phone call away – ask for our input as early as possible in the process, and let us guide you through the journey.
As a self-employed individual, whether you’re a sole trader or company owner or whether you work on a contract basis for one or more main suppliers, you’re every bit as able and likely to get a mortgage offer as any employed borrowers out there.
Don’t let your self-employed status put you off or delay you achieving your dream of being a homeowner. The application process is no more complicated than for an employed borrower, and, dependant on the length of time you’ve been trading on a self-employed basis for, you’ll find that you’re likely to be eligible for pretty much the same product choice as anyone else too. (NB – credit score, deposit level, proof of income etc will all be required to help you achieve this).