How to get a mortgage if you're self employed
If you run your own business or work for yourself, the process of getting a mortgage is slightly different than if you’re employed. Being prepared and understanding what you need before you start looking for a property will make the whole process that bit easier.
Can self-employed people get a mortgage?
You’re classed as self-employed if you own 20% - 25% of your business, and it’s your main source of income. The percentage of ownership might vary ever so slightly from lender to lender, but that’s generally the classification.
You should have access to the same mortgages and rates as someone who is employed. The size of your deposit still plays a really important role in determining what you can afford, and your income will help you access better rates.
You’re put through the same rigorous approval process and still need a good credit rating and proof of earnings to get the best deals.
The key difference though, is the proof of earnings. Because you don’t have a salaried income and no employer to verify how much you earn, you need to provide a lot more documentation and proof to get approved for a mortgage.
Because you need more documentation, we recommend getting everything you need in order before you start house hunting.
Getting a mortgage when self-employed
First of all, make sure your credit rating is healthy before you consider looking at mortgages. Each time you apply for a mortgage, credit searches are performed which in themselves can impact your rating. Too many searches indicate to lenders that you’re desperate for credit or have been rejected in the past. Credit building credit cards are an excellent place to start if you want to improve your rating.
Then when it comes to applying for a mortgage, you need to demonstrate proof of income. To do this, you need:
- At least two years of certified accounts
- SA302 forms or a tax year overview from HMRC for the past three years
If you’re a contractor, you’ll need evidence of upcoming contacts.
If you’re a company director, you need evidence of dividend payments or retained profits.
If you have less than a years’ worth of accounts, you might find it harder to get a mortgage approved by a lender. It’s not impossible, but certainly much harder. If your circumstances let you wait, it’s worth waiting a little longer to build up your accounts. This makes it easier to get a mortgage, resulting in fewer credit checks and better rates.
Lenders also prefer that your accounts are prepared by a chartered accountant so that they know they’re correct and reliable. This will also mean that the process should move quicker.
Your income isn’t the only evidence you need to present. You also have to show:
- Your passport or driving licence
- Council tax bill
- Utility bills no more than three months old
- Bank statements from the last six months
For bank statements, your lender will look at your monthly expenses to make sure that you can afford your mortgage payments. So it’s important to keep your spending during these months sensible so that mortgage advisers have no reason to reject your application.
Buy to let mortgages for self-employed people
The same lending criteria applies to buy to let mortgages for self-employed as it does for employed people. It all depends on the potential earning threshold of your property. This is an extensive topic in itself, so if you want to find out more about buy to let, check out our latest guide.
Just remember that for a buy to let mortgage, you’ll need a bigger deposit than average and it can’t be your first mortgage.
Mortgages for self-employed without accounts
If you don’t have accounts, you’re incredibly likely to have your application declined.
At the absolute very least, you need one years’ worth of tax returns to help demonstrate your affordability. If you have less than a years’ worth of accounts, work with an accountant to calculate your projected future income and get your tax returns in order, as these are a gauge of income.
If you don’t have accounts, we also recommend working with a mortgage broker. They’ll be able to give you advice tailored to your situation, recommend lenders who are best suited to your circumstances and apply for your mortgage for you too.
There are some specific circumstances in which you don’t need accounts, including:
- You’re a contractor or subcontractor.
- You’re a new business owner but have worked in the same type of business before and have a proven track record of past earnings that an accountant can use to predict future earnings.
- You’ve recently become a professional business partner, and you can confirm your income through business accounts.
- You are a recently qualified dentist or doctor.
- You are a barrister tenant, and the Senior Clerk can confirm your income.
To be sure of your chances to get a mortgage if you’re self-employed, speak to a mortgage advisor.
For a smooth property experience, we offer a variety of related professional services including mortgage advice. Get in touch today to talk about your mortgage options.