How can I get a self-employed mortgage?
If you’re self-employed and are looking for the best mortgage, you can still apply for the same range of mortgages as people in employment. The only difference is that because you don’t have an employer to confirm and verify your income, you will need to provide evidence to your lender that you can meet their affordability criteria and be able to make your monthly repayments.
While many mortgage lenders will lend to the self-employed, most will view this as riskier than lending to those in employment, so will apply more stringent criteria when it comes to checking your income.
At the very least, if you are self-employed, you will probably have to prove you’ve been trading for at least three years and have at least two full years of accounts or self-certification records to get a self-employed mortgage.
What is a self-employed mortgage?
Self-employed mortgages aren’t really a thing. If you are self-employed, you’ll still have access to the same range of mortgages products as people who work for someone else, the lenders will just apply a different set of criteria to those who work for themselves.
If you are a freelancer, contractor or company director and derive more than 25% of your main income from your own business, you will be considered self-employed by most lenders. This means that you will have to provide compelling evidence to your lender of your ability to afford and repay your mortgage.
Up until 2014, you could have taken out what was known as a self-certification mortgage, where you simply certified your income to your lender yourself, without having to provide any documentation or evidence. This type of mortgage, however, was outlawed due to concerns that borrowers were taking on mortgages that they couldn’t afford to repay.
Now, if you are self-employed and applying for a mortgage, you will need to provide your lender with at least two years’ of SA302 tax calculations from HMRC, proof of income and expenditure documents such as bank statements or your bookkeeping records, and proof of deposit – your bank statement will likely suffice for this also.
It’s important to remember that different lenders have different rules, so working with an expert mortgage broker will ensure you get the right advice to help you get ready prior to submitting your application. My Mortgage Pro can help connect you with one.
How do self-employed mortgages work?
Applying for a mortgage if you are self-employed is the same as applying for one if you are in employment. You’ll still have access to the same lenders and range of mortgage products as everyone else, you’ll just need to prove your income in a different way.
All that lenders are interested in is your ability to pay.
For people in employment, it’s easy to prove they receive a regular income from their employer, and this is what the lender will calculate the amount they can borrow and their repayments from.
It can be more difficult to prove you have a regular income when you are self-employed, which is why you will be required to provide an enhanced level of evidence before the lender will approve your mortgage.
Much the confusion surrounding self-employed mortgages stems from the old self-cert mortgages that used to be available. This type of mortgage enabled people to get a mortgage without having to prove their income, they simply had to tell their lender what they earned.
However, a significant number of borrowers exaggerated their income to get access to bigger mortgages with minimal checks from lenders, which led the Financial Conduct Authority to outlaw them in 2014.
Can I get a self-employed mortgage?
If you are self-employed, whether as a freelancer, contractor or sub-contractor, you can still get access to the same range of mortgages as anyone else. In fact, if your self-employed business has sustained growth and you can prove that your income has increased over time, you may even be able to get access to the best interest rates and deals on the market. It all depends on your personal circumstances. It is possible to get a mortgage when you are self-employed, provided you can demonstrate to the lender that you can afford the repayments and can manage your finances sensibly.
This means proving you’ve got a steady income, but also doing things like making sure you’ve met any other outstanding credit or loan payments on time, ensuring all of your regular outgoings – such as utility bills and credit cards – are paid on time, and not taking on any new debt.
Also, the more money you have for a deposit, the better, as this will help to bring down the total amount you need to borrow and might even help you to get a better mortgage interest rate.
Contact us for more information about the best Self-Employed Mortgages
My Mortgage Pro is a professional mortgage information service. While we don’t give advice, we aim to provide you with simple, jargon-free, no-nonsense information about self-employed mortgages to help you make the right choice. We can also connect you with a specially selected panel of leading mortgage advisers, who are authorised and regulated by the Financial Conduct Authority, who will provide advice tailored to your specific circumstances and help you find the right mortgage, fast.
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