Getting a mortgage when you’re self-employed can seem tricky. Many people worry that lenders won’t approve their application. The good news is that self-employed individuals can still get mortgages. Lenders typically want to see two or more years of income records from self-employed applicants.

Self-employed mortgage seekers need to provide more paperwork than traditional employees. This often includes certified accounts and tax returns. Lenders use these documents to verify income stability. A good credit score is also important for self-employed mortgage applicants.

Mortgage rates for self-employed people are usually similar to those for other borrowers. Some lenders offer special self-employed mortgage products. Shopping around can help find the best deals. Self-employed individuals should prepare their finances well before applying for a mortgage.

Understanding Mortgages for the Self-Employed

Getting a mortgage when self-employed can be tricky. Lenders have specific requirements for business owners, contractors and sole traders. Income proof and eligibility criteria differ from standard mortgages.

What Makes Self-Employed Mortgages Different

Self-employed mortgage applicants face unique challenges. Lenders often ask for more paperwork to verify income. This may include two to three years of accounts and tax returns. SA302 forms from HMRC are also common requests.

Deposit requirements can be higher for the self-employed. Many lenders ask for at least 10% down payment. This rules out some 95% mortgage deals available to other buyers.

Affordability checks may be stricter too. Lenders typically cap loans at 4.5 times annual income. But they might be more cautious with variable self-employed earnings.

Some lenders specialise in self-employed mortgages. These may offer more flexible terms. A mortgage broker can help find suitable deals. They know which lenders are friendlier to different business structures.

Sole traders, limited company directors and contractors may face different criteria. Lenders assess income and stability differently for each group. Providing a strong business track record is key for all self-employed applicants.

Assessing Your Financial Position

Self-employed individuals need to carefully evaluate their financial status before applying for a mortgage. This involves gathering key documents and calculating income accurately.

Calculating Your Income

Lenders typically look at average profit over the past two to three tax years to determine income for self-employed applicants. Gather your certified accounts, SA302 forms, and tax year overviews from HMRC. These documents show your earnings and tax payments.

Bank statements are crucial too. Provide both personal and business account statements for the last three to six months. This helps lenders assess your cash flow and spending habits.

If you’re a company director, lenders may consider your salary plus dividends. Some may also take retained profits into account. An accountant can help you present your income in the most favourable light for mortgage purposes.

Remember, lenders often prefer stable or increasing income. Be prepared to explain any significant fluctuations in your earnings.

Preparing Your Mortgage Application

Getting ready for a mortgage application as a self-employed person takes some extra effort. The right paperwork and a strong financial picture can make a big difference.

Necessary Documentation

Self-employed applicants need to gather more documents than typical employees. Here’s what you’ll likely need:

• Proof of identity and address
• Two to three years of SA302 forms from HMRC
• Bank statements (personal and business) for the last 3-6 months
• A letter from a chartered accountant confirming your income
• Tax returns for the past two years
• Proof of any additional income sources

It’s wise to organise these papers well in advance. Lenders may ask for extra documents, so be ready to provide more if needed.

Enhancing Your Creditworthiness

A good credit rating can boost your chances of approval. Here are some steps to take:

• Check your credit report for errors and fix any issues
• Pay bills on time, every time
• Reduce existing debts where possible
• Keep credit card balances low
• Don’t apply for new credit before your mortgage application

It’s also helpful to save for a larger deposit. This can improve your loan-to-value ratio and make you a more attractive borrower to lenders.

Selecting the Right Mortgage Product

Self-employed people can access the same mortgage products as everyone else. The key is finding a deal that fits your financial situation.

Comparing Mortgage Deals

Start by looking at interest rates from different lenders. Fixed-rate mortgages offer stable payments, while variable rates can change. Check the length of the deal too – two, five or ten-year terms are common.

Look beyond the big banks. Specialist lenders may be more open to self-employed applicants. A mortgage adviser or broker can help you find these options.

Be wary of ‘self-certification’ mortgages. These risky products are no longer offered by reputable UK lenders.

Compare fees as well as rates. Some low-rate deals have high upfront costs. Factor in valuation fees, legal fees and any early repayment charges.

Consider your future plans. Will you want to overpay or move house? Make sure the mortgage terms allow this flexibility.

Finalising the Mortgage Process

Getting a mortgage when self-employed involves a few extra steps. The lender will carefully review your financial situation before approving your application.

Navigating the Application

To start, gather all your financial documents. These include tax returns, business accounts, and bank statements. Most lenders want to see at least two years of records. Be ready to explain any dips in income.

A larger deposit can boost your chances of approval. It shows the lender you’re a lower risk. Aim for at least 10% of the property value, but 15-20% is better.

The lender will assess your affordability. They’ll look at your income, expenses, and debts. They want to be sure you can manage the monthly repayments. Be honest about your finances to avoid problems later.

Closing the Deal

Once your application is approved, you’ll get a mortgage offer. Read it carefully. Check the interest rate, fees, and terms. Make sure you understand the repayment schedule.

You might need to pay for a property survey. This checks the condition of the house. It can spot any issues that could affect its value.

Your solicitor will handle the legal side of things. They’ll do searches to check for any problems with the property. They’ll also arrange the transfer of funds.

On completion day, you’ll get the keys to your new home. Make sure you have buildings insurance in place from this date. You’re now a homeowner!

Contact us now via email info@mortgagebw.co.uk or telephone 0121 758 8527