Self-Employed Mortgages: Hints & Tips
Posted on 26th January 2021
Is being self-employed a barrier to buying property? Worried you’ll be saddled with an over-inflated interest rate and a never-ending series of hoops to jump through? With around 4.53 million people in the UK now self-employed [ONS Nov 20], it’s a real concern for many. Fear not, here we’ll explode the myths and answer some questions to put your mind at ease.
1. How limited is my choice of mortgage?
It shouldn’t be limited at all. The self-employed have the same rights and access to a mortgage as anyone in permanent employment. It’s discriminatory to not offer the same. Proof of earnings is more complicated, but your choice is the same.
2. How long after I start my own business can I get a mortgage?
Depends on the lender; a small numbe rof lenders will as for a minimum of onee years' worth of accounts but the marjority of lenders will usually ask for a minimum of two years’ worth (sometimes three) of accounts, tax returns or SA302s (self-assessment tax calculation form). Contractors may also need proof of future work to show they will maintain their earnings. Even without such proof of income, a steady record of work might be enough for some lenders. If you are remortgaging or already have a mortgage, your current lender will have evidence of your consistency of and ability to meet mortgage payments and so will be more understanding.
3. Are there any specific mortgages for the self-employed?
Not any more. Before 2011, it was possible to take out a self-certification mortgage, whereby the self-employed could get a mortgage without proving their income. But these were withdrawn following misuse by both borrowers and lenders. Some lenders offer mortgages specifically for the self-employed, but you should have access to the whole market.
4. Is the mortgage application process different for the self-employed?
The only difference is your proof of earnings which may take longer to collate than a couple of years’ worth of payslips and P60s. So allow more time in your application process. An accountant might be beneficial at this stage.
5. Is there anything that can harm my changes of getting a mortgage?
When preparing end of year accounts for the self-employed, accountants will usually look for legitimate deductions they can make to your income to result in a smaller tax bill. This will impact on the amount you can potentially borrow. Beware of this if you are planning to purchase property. Similarly, if part of your earnings come through a PAYE scheme, your overall business income appears lower.
6. How is the mortgage loan amount calculated?
If you are a sole trader or in a partnership, net profit is considered as your income. If your income is on the rise, it’s usually the average income from the past two or three years that’s considered (as long as you’ve been trading that long). If it’s gone down, it’s likely to be the latest and lowest figure.
If you’re a contractor earning a day rate, earnings are usually calculated by multiplying the rate by the number of working days in the year, as well as looking for at least a year’s contract history.
If you have a limited company, your lender will consider salary and dividends or sometimes salary and net profit.
7. What can I do to boost my chances of getting a mortgage?
As with anyone applying for a mortgage, having a good deposit saved, a good credit rating and knowledge that you earn enough to meet the repayments, should be enough. You can prepare for your application by keeping up to date records, complete an SA302 (see point 2) to prove your income and use the services of professionals. A good accountant and an independent mortgage adviser will prove really useful.
8. Will being self-employed cost me more in the long run?
It shouldn’t – though we can’t guarantee that. Some lenders will offer higher rates if you only have one years’ accounts but anyone with a minimum of two years should be offered exactly the same as everyone else.
If you are self-employed in any capacity, the best course of action to save you time, money and hassle is to find a recommended and impartial mortgage adviser. They will know all the deals available and be able to find you the best for your individual circumstances.
Your home or property may be repossessed if you do not keep up repayments on your mortgage. The information contained in this website is subject to UK regulatory regime and is therefore intended for consumers based in the UK. Reeds Financial is a trading style of Reeds Financial Limited which is an appointed representative of The Right Mortgage Ltd, which is authorised and regulated by the Financial Conduct Authority. Reeds Financial Limited is registered in England and Wales no: 12656133. Registered address: Reeds Financial Limited, Innovation Centre Medway, Maidstone Road, Chatham, Kent, ME5 9FD. A fee may be charged and a typicall fee is £499 which is payable on application, for our service in relation to mortgage contracts.
Tagged as: Self Employed
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