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Can you get a mortgage if you’re self-employed? Yes, you can!

In this article, our mortgage experts at PIL Southampton talk through your options if you are self-employed and looking for a mortgage, as well as giving useful advice to help maximise your chances of getting your mortgage application approved.


Addressing common misconceptions

There isn’t a specific product range of mortgages tailored to the self-employed. You can apply for the same range of mortgages as anyone else. The only difference is that you will have to provide more evidence of having a reliable income, to reassure your lender that you will be able to meet your repayments.

Many people assume that self-employed individuals can only get higher rate mortgages. This is not the case – you shouldn’t have to pay more for your mortgage just because you are self-employed.

As long as you can prove that you can afford your repayments, you should qualify for the same mortgage rates as someone who is in a permanent, employed role.

You don’t know until you try! Many self-employed individuals don’t believe they will be able to get a mortgage so they don’t even apply. You could be surprised what mortgage deals are out there for you.


Approval criteria for self-employed mortgage applicants

Lenders do set a higher bar for self-employed people than employed applicants, and they can often demand a higher deposit.

Another key criteria for many lenders will be your credit score. The more positive your credit score is, the more choice you will have regarding the range of mortgages available to you.

Just like an employed person applying for a mortgage, you will need to provide a passport or driving licence for proof of identity, utility bills to verify your address, bank statements for the past six months (lenders may also ask questions about your spending activity) and evidence that you have your deposit.

In addition to these requirements, self-employed applicants will also need to provide further documentation to demonstrate their income. This is most likely to include:

  • At least two years of certified accounts, ideally prepared by a qualified accountant.
  • SA302 forms or a tax year overview from HMRC covering the past two or three years.
  • Contractors may also need to show evidence of future contracts that are in the pipeline.
  • Company directors may need to give proof of dividend payments or retained profits.
  • Umbrella service and CIS applicants will ideally need to provide 12 months of pay slips, though a lender may accept only three months.


How lenders calculate your self-employed earnings

Usually, if you are a sole trader, lenders will look at your net profit over the past two or three years, taking the average figure across those years.

If you are a contractor, lenders will take the average of your income over the past few years. However, it is worth noting that, if your earnings fluctuate a lot, lenders may take your lowest earning year as a baseline for what you can afford to borrow. Some lenders may be happy to calculate an annualised figure from your day rate.

If you have a limited company, lenders will refer to your share of net profit or your salary and dividends.

Tip: If you have just had a particularly strong financial year, it could be a good idea to apply to a lender who only asks to see your previous year’s accounts, rather than them taking an average from the last few years.

Traditionally, mortgage lenders would request a minimum of two or three years of accounts, to base an average income from, but we are pleased to see that some lenders are now becoming more accommodating for people who have recently become self-employed. 

Some lenders are now also applying individual case-by-case assessments for self-employed applicants. This is a welcome move as one self-employed applicant’s circumstances can be very different from another’s.

At the time of writing, lenders who accept one year of accounts include (amongst others) Aldermore Bank, Cambridge Building Society, Halifax, Kensington, Kent Reliance, Newcastle Building Society, Precise Mortgages, TSB and Vida Homeloans. 


How you can improve your mortgage chances

There are several areas you can focus on, to maximise your choices of getting a mortgage approved when you are self-employed, and to help the process run as smoothly as possible.

  1. Collate your most recent SA302 forms generated by HMRC, to show your lender as evidence of your self-employed income. Tip: If you send your returns in by post, rather than using the online system, you will need to contact HMRC to get the forms posted to you. As this could take up to two weeks, make sure you have them before you apply for a mortgage, to avoid causing any delays.

  2. Use accounts prepared by a qualified accountant as these will hold more weight than those you have prepared yourself because lenders don’t want to just take your word for your earnings. However, do bear in mind that an accountant minimising your income in order to reduce your tax bill could backfire when you are applying for a mortgage; a smaller income will reduce the amount you can borrow with a mortgage.

  3. Come up with the biggest deposit you possibly can, as this will give you more mortgage deals to choose from. Also, remember that each bank or building society will have different lending criteria, and you could find that some have more favourable terms for self-employed applicants than others. Tip: If family members are gifting you funds towards your deposit, make sure the paperwork is all in order before you apply for your mortgage. If you are using business funds for your deposit, it might be prudent to make regular withdrawals rather than one big lump sum which might cause delays if the lender decides to ask your accountant to confirm that it will not be detrimental to your business.

  4. Boost your credit score through simple steps, including: 
  • Making sure you’re on the electoral roll.
  • Checking for minor anomalies on your records, like a mistyped address or inconsistent job titles, and getting them corrected.
  • Building your credit history so that companies have something to assess you by.
  • Monitoring your account for any fraudulent activity.
  • Avoiding moving home frequently if you can.
  • Keeping old accounts open and showing a long credit history.
  • Paying your bills on time and by direct debit and, with credit card payments, paying more than the minimum when you can.
  • Keeping your credit utilisation (the percentage you use of your available credit) low.
  • Minimising your credit applications in the few months before applying for a mortgage.
  • Staying away from payday loans as lenders might conclude that you took one out because you were in financial difficulty.


What to do if you get refused

Don’t panic! The first thing to do is find out why you were refused and then see what you can do to fix it and hopefully avoid it happening again. This is something that our experienced mortgage advisers at PIL Southampton would be happy to explore for you.


How PIL Southampton can help you to get a mortgage if you are self-employed

Using our extensive knowledge and experience, we will find the best mortgage deals that are available to suit your particular circumstances. 

Our priority is to make the process as straightforward as possible for you, using our extensive knowledge and experience.


How you can contact PIL Southampton

Our friendly, knowledgeable mortgage advisers are here to guide you through the mortgage process, every step of the way. You can email us, fill out the contact form on our website or call us on 02380 668407.