Self Employed Mortgages
For the self-employed, getting a mortgage, or even researching the options available can seem a daunting and difficult task. But fear not, this article is here to help and advise the self-employed as to the options available for a mortgage, what you need to qualify for a mortgage and what lenders are available.
Taking out a mortgage for the self-employed
The first thing you should know, is that to be seen as self-employed by a lender, you need to own about 25% or more of a company. Secondly, your chances of getting a mortgage while self-employed are just as good as anybody else’s, many lenders offer a variety of mortgages for self-employed individuals. Self-certification mortgages (mortgages where the self-employed did not have to give proof of income) are no longer available; therefore, you must be able to provide proof of your income for your lender. Generally, you should be able to provide at least two years of the company earnings’ reports as your necessary proof.
However, even if you don’t have two years’ worth of records, it may still be possible for you to get a mortgage. For example, if you are close to completing your first year of trading, we can work with your accountant to establish your income ready to apply for a mortgage. Proving your income is simple, you just need to complete a self-assessment SA302 (also known as a tax calculation) form. Self-employed workers who have a regular track record of contract work may be able to use this to their advantage.
Mortgage lenders for the self-employed
As a general rule for self-employed mortgages, consistency is key, most lenders offer self-employed mortgages, as long as you have the record to show consistent earnings for at least a year or two, under this amount, you cannot currently get a residential mortgage. However, there are many mortgage lenders for the self-employed, either specialist, or standard lenders; The important thing to remember, is that they all have varying requirements and offers for their mortgages, so it is essential to research and always seek the knowledge of a mortgage broker or one of our own financial advisors for the best rate available to you, since some lenders are happier to offer a mortgage to self-employed buyers than others.
How a self-employment mortgage is calculated
The rates between different lenders vary, as they do for a standard mortgage, but your mortgage is calculated differently depending on your legal status as self-employed.
If you are a sole trader, or in a partnership, your lender will use your net profit as your income. However, for limited companies, the lender will use salaries and dividends, or in some cases, they will look at the salary and net profit of the company.
When you apply to a lender for a mortgage, it can be challenging for them to work out your regular income, you may have months or years with lower profits or vice versa. This variation can affect your mortgage offer.
Improving your chances when applying for a self-employment mortgage
You are more likely to get a good mortgage from your lender if you have a healthy deposit, a good credit rating and enough income to cover your monthly mortgage repayments (with proof).
You should also focus on keeping your accounts and documentation up to date, as this will allow any lender to have more confidence when deciding to lend to you. It may also be a smart move to hire an accountant to keep your accounts and taxes in order and an expert broker to help you find the best mortgage deal for you to increase your chances further.
The longer you’ve been self-employed, the better chances you have, so it may be beneficial to wait until your company has existed for a couple of years to get yourself a better mortgage deal.
Improving an existing mortgage
If you already have a mortgage, you may be able to speak to your lender about getting a better deal, especially if you have seen improvements in your income. Furthermore, your lender will already have checked your accounts, so it may be quicker for your new and improved mortgage to get accepted.
Overall, as long as you have your accounts in check, with proof of your income and seek the guidance of a mortgage broker or contact one of our financial advisors (contact details below) for help select potential lenders, you should have no issue getting your mortgage to buy a home or remortgage on a home you already have a mortgage on.
If you have any further questions about mortgages for the self-employed, do not hesitate to contact our expert team of financial advisors by telephone: 0115 896 9776 or complete the form below for a callback.
Your home may be repossessed if you do not keep up repayments on your mortgage.
You may have to pay an early repayment charge to your existing lender if you remortgage