Is it harder to get a mortgage if you’re self-employed in the UK?
If you’re self-employed, it can be more challenging in the early stages of the application as you will need to gather more forms of proof of income, affordability etc. However, overall, getting a mortgage is no harder and if you’re prepared then it’s just the same as any other mortgage application.
It’s probably a good idea to choose a broker to help you out with your application right from the start. A good mortgage broker will specialise in helping people in all circumstances, including self-employed, find the right mortgage lender for them.
What are self-certification mortgages and do they still exist?
“Self-certification” or “self-cert” mortgages were specifically designed for the self-employed and allowed them to declare their own earnings to mortgage lenders without any need to actually prove their income.
Because these mortgages were not always done in the right way, and because people were borrowing way more than they could pay back, these mortgages were banned completely in 2014.
There is now no way for a mortgage application to be made using the old ‘self-cert’ process, and all applications for mortgages must be made with verifiable proofs of income and earnings attached.
What counts as self-employed?
Lenders will view you as self-employed usually if you own more than 20% of a business, although different lenders have their own criteria and so its vital you speak to an experienced mortgage broker who knows about these kinds of specifics. You will also be classed if you’re a sole trader and sometimes as an agency worker, or contractor. Again, it’s important you speak to an advisor who knows this area well.
How do you get a self-employed mortgage?
You’ve got access to the same range of mortgage lenders as employed people in theory, but in practice, you may find some specialist lenders offer you better terms as a self-employed individual.
Your mortgage broker will be able to advise you which lenders are best for you, and it’s going to depend a lot on what proofs you can apply as some lenders require just 1 year’s accounts while others need 2 or 3.
That’s where having the specialist advice from the outset works in your favour, you don’t have to know all the ins and outs, but your mortgage broker does, and they will advise you accordingly.
What will I need to provide for a self-employed mortgage?
To prove your income when you apply for a self-employed mortgage, you will need to provide copies of all of the below to your broker:
- One or more years’ certified accounts
- SA302 forms or a tax year overview (from HMRC) for the past one-year minimum
- Evidence of historic, current and possibly upcoming contracts (if you’re a contractor)
- Evidence of dividend payments or retained profits (if you’re a company director)
By certified accounts, it’s generally considered to mean accounts that are verified and prepared by a chartered accountant – remember, it’s no longer possible to verify your own numbers, as these all have to be independently verified.
Although some lenders ask for three year’s accounts and tax returns, others will work with you with two or even one year of proofs. It’s worth asking your broker what deal you can get as you approach your first year, as some lenders may also accept projected figures from your accountant, to add to the future stability of your self-employment.
Having a healthy deposit and a good credit history will also help your chances of securing a mortgage when you’re self-employed, but your broker can also help if this is not the case either.
What evidence will I need to provide for a self-employed mortgage?
This list is not exhaustive, however you wouldn’t need to provide everything on this list, but do take it as guidance.
- Your most recent Passport
- Your current Driving licence
- Your latest Council tax bill
- One or more Utility bills, dated from within three months
- At least three months worth of bank statements
Nowadays, some lenders will examine your bank statements to look at how much you spend on bills and other costs to be certain you are asking to borrow an affordable amount. This will include them looking at:
- Your normal monthly household bills/regular spending habits
- Your monthly travel and commuting costs
- Your monthly childcare costs
- How much you spend on holidays
- How much you spend on socialising
- How much you spend on your hobbies/regular activities
- How much you spend on your credit card and store card repayments
- How much you spend on your monthly loan repayments
- How much you spend on your monthly car finance agreements
- How much you spend on your repayments to any catalogue credit accounts
Do self-employed people have to pay higher mortgage rates?
Self-employed mortgages aren’t necessarily more expensive. As long as you’re able to supply enough information about your income, you should qualify for the same mortgage deal as someone with a comparable salary in a permanent, full-time job.
The mortgage rate you get is much more likely to depend on the size of your deposit, as well as your credit rating.
The more can put down as a deposit, and the higher your credit rating, the better your mortgage rate is likely to be.
How can I boost my mortgage chances?
There are a number of steps you can take to increase your chances of being accepted for a mortgage when self-employed, such as:
- Get together as much of a deposit as possible
- Check your credit report
- Correct any mistakes on your credit report
- Pay off any small amounts owing
- Make sure you’re on the electoral roll
- Speak to a mortgage broker at the beginning of your search
How do I find the best mortgage deals as I’m self-employed?
The best way to find a competitive self-employed mortgage is by contacting us. We will guide you to the best lenders and the best deals for you.