If you’re self-employed and looking to get a mortgage, you might be thinking about how the process works and whether it’s harder to secure a loan compared to someone with a regular job. While the process may be different, it is possible to get a mortgage when you’re self-employed. In this guide, we’ll walk you through the steps, provide helpful tips for improving your chances, and explain the key requirements.
How do you get a self-employed mortgage?
Getting a mortgage when you’re self-employed involves many of the same steps as if you were employed, but lenders will pay closer attention to your financial history and how you prove your income. Here are the basic steps involved in getting a self-employed mortgage:
- Check your credit score: Lenders will look at your credit score to see how well you’ve managed your finances in the past. A higher credit score may make it easier for you to secure a mortgage and get better rates.
- Provide proof of income: Unlike salaried employees who have regular payslips, self-employed individuals need to show proof of income, typically through tax returns, bank statements, and financial records. Most lenders want to see at least two years of accounts to ensure your income is steady.
- Decide on the loan amount: Based on your income and financial situation, you’ll need to decide how much you can afford to borrow. Remember to keep your monthly payments manageable.
- Find a suitable lender: Some lenders specialise in self-employed mortgages and are more flexible with their requirements. It’s worth comparing rates from different lenders so speak with a mortgage broker who can help you find the best deal.
Do self-employed people have to pay higher mortgage rates?
In some cases, yes, self-employed individuals might have to pay slightly higher mortgage rates. This is because self-employed borrowers are often seen as higher risk due to the lack of a consistent salary and the variability of their income. Lenders want to be sure that you can make your payments even if your income fluctuates.
However, not all self-employed borrowers will face higher rates, especially if they have a strong credit score, stable income, and a large deposit. The key is to shop around for lenders who offer good deals to self-employed people and compare rates to get the best offer for your situation.
What will I need to provide for a self-employed mortgage?
When applying for a mortgage, self-employed borrowers need to provide more detailed financial information compared to employed individuals. Here’s what you may need to provide:
- Tax returns: Most lenders will ask for at least two years of self-assessment tax returns to understand your income.
- Profit and loss statements: These documents show how much your business earns and spends, giving lenders a clearer picture of your finances.
- Bank statements: Lenders will often ask for recent bank statements (usually 3-6 months) to confirm your income.
- Other documents: Depending on the lender, you may also be asked to provide other supporting documents such as business accounts, contracts, or dividend statements.
Other self-employed mortgage requirements to keep in mind
Beyond proof of income, there are a few additional things you need to consider when applying for a self-employed mortgage:
- Your business structure: Lenders will look at your business structure, whether you’re a sole trader, in a partnership, or have a limited company. Limited companies can be more complicated, so it may take longer to provide the necessary documentation.
- Deposit size: A larger deposit can help improve your chances of being approved, as it shows the lender that you have more equity in the property and reduces their risk.
- Credit score: Just like with employed applicants, lenders will check your credit score. A higher score will give you more options and better rates.
- Length of self-employment: Lenders often require you to have been self-employed for at least two years. Some lenders may accept less, but it depends on the situation. You may be able to get a mortgage even if you’ve been trading for just a year.
How will a lender calculate my self-employed mortgage earnings?
Lenders will look at your income over the last two years to assess how much you can afford to borrow. This can include earnings from your business, dividends, and other sources of income like rental properties or investments.
The lender will typically average your income over the past two years to get an idea of your stable earnings. However, if you’ve had a particularly good or bad year, they might take that into account and adjust the figure.
What self-employed people can do to improve their mortgage chances
There are several steps you can take to improve your chances of getting approved for a mortgage:
- Keep detailed financial records: Accurate and up-to-date records are essential. Ensure your accounts are clear and show consistent income.
- Pay down debts: Reducing your debt levels can help improve your credit score and show lenders that you are financially responsible.
- Save a larger deposit: The more you can put down upfront, the better your chances of securing a good deal. A 20% deposit or higher is ideal.
- Work with a mortgage broker: Mortgage brokers are experts in finding the best mortgage deals for self-employed people. They can help you compare lenders, ensure you meet all the requirements, and find a mortgage that works for you.
How long do you have to be self-employed to get a mortgage?
While most lenders want to see at least two years of self-employed income history, it’s possible to get a mortgage with less than that. However, you’ll need to show that your business is stable and your income is consistent. Lenders may be more flexible if you have strong business performance or other factors in your favour, such as a large deposit.
How to find the best mortgage deals for the self-employed
Finding the best deal requires some research and consideration of various self-employed mortgage lenders:
- Compare lenders: Not all lenders are the same, and some specialise in self-employed mortgages. Compare rates, terms, and fees to find the best deal for you.
- Consider using a broker: A mortgage broker can help you navigate the process and find the best lender for your specific situation.
- Check your credit score: A good credit score can give you access to better deals. Make sure it’s in good shape before applying.
- Understand the requirements: Make sure you meet all the lender’s requirements before applying to avoid rejection.
Conclusion
Getting a mortgage when you’re self-employed may feel challenging, but it’s achievable. By preparing your financial documents, improving your credit score, and shopping around for the best deal, you can find a mortgage that suits your needs. It may be helpful to work with a broker who specialises in self-employed mortgages to get the best rates and simplify the process.
If you’re ready to apply for a self-employed mortgage, check out our self-employed mortgage products and learn more about your options. You can also find a broker to help guide you through the process.