Self-Employed Mortgages
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Written by:
Alison Gibson
Ascot Mortgage Expert
Last Updated:
16.12.2022
Written by:
Alison Gibson
Ascot Mortgage Expert
Last Updated:
16.12.2022
How Do You Get a Self-Employed Mortgage?
Getting a mortgage being self-employed is similar to employed applicants, but there are additional steps. Lenders will want to see proof of your income and financial stability. Typically, they’ll ask for at least two to three years’ worth of accounts or tax returns to assess your earnings. If you’re newly self-employed, this could be a bit more challenging, but there are still options available, particularly if you have a strong credit history and can provide a significant deposit.
What Will I Need to Provide as a Self-Employed Applicant?
When applying for a mortgage for self-employed individuals, you’ll need to provide specific documentation to prove your income. Here’s what you’ll generally need:
- SA302 forms or tax year overviews: These are provided by HMRC and show your income over the past few years.
- Business accounts: Typically, lenders will ask for two or three years of accounts prepared by a certified or chartered accountant.
- Bank statements: Personal and business bank statements can be used to further verify your income and expenditure.
- Proof of deposit: As with any mortgage, you’ll need to show where your deposit is coming from.
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Do Self-Employed People Have to Pay Higher Mortgage Rates?
It’s a common misconception that self-employed individuals automatically have to pay higher mortgage rates. While it’s true that some lenders may see self-employment as a higher risk due to potentially fluctuating income, this doesn’t necessarily mean you’ll face higher rates. By shopping around or working with a mortgage broker at Ascot Mortgages, you can find competitive rates tailored to your circumstances.
Work Out How Much You Might Be Able to Borrow
How much you can borrow as self-employed applicant depends largely on your income, deposit, and overall financial situation. Lenders will typically lend between four and five times your annual income, but this can vary depending on the lender and your specific circumstances. Using our mortgage affordability calculator can give you a rough idea of what you might be able to borrow.
Mortgage Affordability Calculator
Use this calculator to determine how much you could potentially borrow for a mortgage, based on the typical salary multiples used by most UK lenders.
Get expert advice immediately if...
- You need to borrow more than 4.5 times your annual income
- You are only using one income on your application
- You earn income through sources such as Benefits, Commission or Rental income
- You consider yourself to be on ‘low’ income
If one or more of the above apply to you, it’s important to get expert advice before making an application. The right broker can help maximise your chances of approval based on your circumstance.
How Will a Lender Calculate My Income as a Self-Employed Applicant?
Lenders usually calculate your earnings based on your average income over the past two to three years. They may look at your net profit if you’re a sole trader, or your salary and dividends if you run a limited company. If your income has increased significantly over the years, some lenders can take your latest year’s earnings into account. However, consistency is key, and any large fluctuations in income will need to be explained.
Boost Your Mortgage Chances
To increase your chances of securing a mortgage when self-employed, consider the following tips:
- Keep accurate records: Make sure your financial records are up-to-date and clearly show your income.
- Check your credit score: A good credit score can make a significant difference. If your score is low, take steps to improve it before applying.
- Work with a mortgage broker: Ascot Mortgages can help you find lenders who specialise in self-employed mortgages.
Get Your Paperwork Ready
Having all your documents in order is crucial when applying for a sole trader mortgage. This includes your tax returns, business accounts, bank statements, and any other relevant financial documentation.
How to Find the Best Mortgage Deals for the Self-Employed
Finding the best mortgage deal when you’re self-employed involves comparing different lender’s criteria to find the most appropriate solution for your needs. Working with a mortgage broker like Ascot Mortgages who understands the criteria for a number of lenders can be invaluable. We can help you find the right deal, whether you’re looking for a fixed-rate mortgage, a tracker mortgage, or another type of product that suits your financial situation.
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FAQ
01/ How to get a mortgage when self-employed?
To get a mortgage when you’re self-employed, you’ll need to provide at least two to three years of accounts, SA302 forms, and possibly bank statements to prove your income. It’s also helpful to have a good credit score and a significant deposit.
02/ How long do you have to be self-employed to get a mortgage?
Most lenders prefer you to have been self-employed for at least two years, but some may consider your application with just one year’s accounts.
03/ What happens if I've got gaps in my work history?
Gaps in your work history can be a red flag for lenders, but they’re not necessarily a deal-breaker. Be prepared to explain any gaps and provide evidence of your ability to maintain stable income.
04/ What if I've not been self-employed for long?
If you’ve not been self-employed for long, it can be harder to get a mortgage, but it’s not impossible. Some lenders might accept just one year of accounts, especially if you can provide a larger deposit or have a strong credit history.
05/ Will maternity leave impact a mortgage application?
Maternity leave can impact your mortgage application if it affects your income, but lenders will usually consider your overall earning potential. Providing evidence of your return to work plan and future income can help.
06/ Do 'self-certification' mortgages still exist?
Self-certification mortgages, where you didn’t have to prove your income, were banned in the UK in 2014. Now, all lenders require evidence of your income through tax returns and accounts.
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