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Self-Employed Mortgages And How To Be Accepted
If you’re Self- Employed it can sometimes feel like it is more difficult to get a mortgage. While there aren’t products specifically designed for people who are self employed, there are some lenders that are more open to accepting them.
What is a Self-Employed mortgage?
There are no specific mortgage products for the Self-Employed. If you work for yourself you can apply for the same products as an employed mortgage applicant. The difference comes in how you demonstrate your income and that you can afford the mortgage you’re applying for.
Some mortgage lenders look more favourably on the self employed than others, so it’s worth talking to a financial advisor to help identify the most suitable options.
To a lender, you’re self employed if you own 25 per cent or more of a business registered in England or another part of the UK. There’s no difference for people in a partnership versus a sole trader position.
You may have heard of self certification mortgages, which were popular with the self employed in the past. These have since been banned by the Financial Conduct Authority .
How will your Self-Employed application be assessed?
As an employed person applying for mortgages, you are simply asked what your salary is and to supply payslips to prove your income. It’s harder for a lender to assess income for a sole trader or limited company, especially if it varies a lot from month to month.
Most lenders will want to see at least two sets of certified annual accounts, but if you can supply more information, even better. Being able to demonstrate your salary and dividends, and ideally increasing retained profits year on year will certainly help your application. You will also have to evidence SA302 forms (self assessment) to confirm your taxable income.
If your income varies a lot year by year, it helps to provide details of new business contracts, or bank statements that show you have savings.
As with any loan application, your credit rating will also be taken into account. If your credit score is low, this could have a more negative effect on being accepted for a mortgage than your self employed status.
How much can you borrow/what deposit will you need?
The amount you’ll be approved to borrow will depend on your personal circumstances. Different lenders also have unique criteria for deciding how much to approve.
As a very general rule, you might expect to borrow up to 4.5 times your annual income. However, this can be tricky to calculate when you’re self employed.
As always, the bigger your deposit, the better your chances of being accepted for a competitive-rate mortgage. The standard deposit is at least 10 to 20 per cent, but if you raise more, it is easier to convince a mortgage company that you are a safe risk.
It’s an obvious statement but be careful not to overstretch yourself. If you struggle with meeting mortgage repayments, your home may be repossessed.
How do you improve your chances of being accepted by a lender?
The first step to getting a mortgage for Self-Employed people is to make sure all your records are up to date. Lenders look at how long you’ve been in business, so if you have been trading for under a year you might want to wait before trying to buy a home.
Managing your books can be complicated, so if you don’t have an accountant it’s worth appointing one to make sure everything is in order. They can also certify your accounts, which is important for mortgage approval.
You might find that a joint mortgage with someone who has a regular, employed role and consistent salary might improve your attractiveness to a mortgage company.
How can a Mortgage Broker help you if you are Self-Employed?
Talking to a Mortgage Broker is always worthwhile, in any situation. A mortgage specialist knows the market and will be able to suggest the providers that are most likely to accept you based on your own specific circumstances.
In addition, they can also help you identify the paperwork and records you will need for a successful application. We are authorised and regulated by the Financial Conduct Authority and will take away much of the stress – and hard work – of finding a mortgage to suit you.