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.
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.
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:
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.
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.
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.
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.
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.