What are self employed mortgages?Although there will be those who have faced numerous mortgage rejections and may think differently; there is no such thing as self employed mortgages and someone who is self employed is eligible for exactly the same mortgage options, rates and restrictions as anyone else.
The difference is that most mortgage lenders will be happy to accept PAYE evidence (payslips) as proof of earnings to assess an employee’s ability to afford repayments, whereas self-employed individuals might find lenders have different requirements as to what they will accept as evidence that you will be able to afford the mortgage and aren’t too much of a risk.
When does this apply?Generally, lenders will classify someone as ‘self employed’ if you own more than 20% of a business, although this can vary between lenders and other conditions may apply.
What do you need to get a mortgage if you’re self employed?If you fall into the category of self employed mortgage advice suggests that you will need to have evidence of any declared income by supplying accounts of your business, certified by a qualified accountant.
A good document to provide (if you have one) is an SA302 Self Assessment tax calculation document which may be easier to prepare than full business accounts, although it won’t be accepted by all lenders.
A good self employed mortgage broker should be able to assist you in finding lenders who are willing to accept your SA302 if you are unable to obtain additional documentation, as well as explain any other information which might be required.
How much history do you need?Usually, mortgage lenders will want to take an average earning from the last 2 - 3 years in order to establish a consistent stream of income and show you are not too high a risk.
They may also consider aspects such as whether your most recent year has been considerably more or less profitable than previous years or any future predictions of earnings, although this will vary between lenders.
What if you’ve only been self employed for a short time?Although most lenders will want 3 years of earning history, some may be willing to accept less. In the 2018/19 tax year, new rules were introduced to provide assistance for those who have been self employed for 9 - 12 months, so it is definitely possible to obtain a mortgage even if you’ve only been self employed for a short time.
Speaking to a self employed mortgage broker such as the Mortgage Hut may help to improve your chances of obtaining a favourable mortgage, as our specialists will be able to find lenders who are not on the high street and who are able to be a little more flexible in their requirements.
If you’ve not been trading long enough to have full accounts of your income, then you may still be able to approach a lender to ask about self employed mortgages, as they may be able to take your projections into account and give you a preliminary acceptance which lasts for 3 months, even if they can’t approve you immediately. This may speed up the process for when your accounts are ready.
Is there anything you can do to improve your chances of being approved?As is true for anyone looking to get a mortgage, there are a few steps you can take to increase your chances of being approved:
- Firstly, ensure your credit rating is as good as possible. There are a number of free credit checking websites these days which you can utilise for this.
- Secondly, gather together the largest deposit possible. Even if your accounts are lacking slightly, a lender may be more forgiving of a newly self employed applicant if you can show that you have a substantial deposit available to put towards the property so that you are borrowing a smaller percentage.
- Thirdly, try to avoid ‘red flags’ such as payday loans, gambling or “luxury” items for 6 months prior to applying for your loan as lenders will often go through your accounts with a fine tooth comb to ensure that you are a safe investment.
Even if your credit history isn’t great, you may still be approved for a loan provided that you don’t have any serious debt problems on your file from the last 2 years. Speak to your self employed mortgage broker if you’re concerned about your credit rating affecting your ability to obtain a mortgage.
Why use a self employed mortgage broker?A mortgage broker specialising in mortgages for self employed individuals will be well versed in the requirements of different lenders and will be able to help you navigate the market to find the best rates.
With in-depth access to the market, including lenders that aren’t on the high street, the right mortgage brokers will be able to assist you in finding a lender who is willing to accept your accounts no matter how recently you’ve transitioned into the growing world of self employed workers.
A broker will also be able to assist you with gathering together the required evidence, and ensuring that your accounts are acceptable for each lenders’ requirements, as these can vary greatly depending on each lender's priorities and risk assessments.
Finally, they'll be able to look at your files and suggest amounts for which you’re likely to be approved and how large a deposit you are likely to require.