Mortgages For Self Employed People
Standard high street lenders struggle to offer mortgages to the self-employed, contractors and freelancers without considerable paperwork and delay, so finding the right one for your circumstances can be daunting.
Sole Traders, Partnerships, and Company Directors, we are here to help you get a self employed mortgage!
Alexander Southwell Mortgage Services is an independent mortgage broker that has strong relationships with the key lenders in the UK mortgage market, including banks and building societies who do not have a high-street presence.
We arrange bespoke mortgage solutions for our self-employed clients, providing a tailored one-to-one advisory service, delivered face-to-face or remotely, depending on what suits you.
When you are self employed and you wish to buy or remortgage your home, you will complete the same application as everyone else. Lenders also consider the same criteria: – your credit score, your debts, your assets, and your income. Despite having all the advantages of being self-employed and your own boss, it can still present challenges when it comes to getting a mortgage.
What you can do to best prepare for your self employed mortgage application
When you are self-employed it is a good idea to start preparing as early as possible. As the mortgage lenders require affordability assessments to be completed its important to have all the required paperwork to access the best possible mortgage and rate.
For us to best help and to offer you the most competitive across the market if you are self employed it is important that you have the follow in order and up to date: –
- SA302 forms along with the tax years overviews for the past two or three years
- Two or more years of certified accounts
- Six months’ worth of bank statements (business and personal)
- Evidence of upcoming contracts, dividend payments or retained profits depending on your form of self-employment
- Information on your accountant (chartered accountants as preferred by lenders)
All the above depend on the set up of self-employment, this will all be explained throughout the process with your mortgage broker. Having as much of this information and documents to hand will improve your chances of being approved and approved first time.
Saving for a larger deposit and having a good credit history can also help you to gain access to a better mortgage deal as this will pose as a lower risk to the lender. Being well-prepared can really help you as a self-employed borrower, so if you are even considering buying or remortgaging a home then it is a good idea to start preparing this as early as possible.
Who is eligible for a self employed mortgage?
As a sole trader when self-employed, it can be a struggle and an overwhelming feeling as to where to start with who is going to be the best suited lender for you based on their lending criteria. It is even more of a minefield if you have been trading for less than three years or if you have experienced one bad year as in some cases lenders will be unwilling to even consider your application. It is important to understand that lenders will be looking at your profits when assessing your income therefore it will be important to file your tax assessments before applying for a self employed mortgage.
As a limited company you can be considered in several ways, for example as an employee. This can present some challenges, particularly if you take a low director’s remuneration (salary). Like any form of self-employment, it is important that your accounts are up to date and clear show your annual income and any company profits.
Partnerships & LLPS
Partnerships and LLPs like any other self-employed role will require copies of the business accounts. If paid by a basic income then this will need to be proved along with any profit share or bonuses, including any retain business profits.
It is possible to get a mortgage as an independent contractor, you just need to provide evidence of past and future work. There are even some lenders that will consider applications from people who’ve been contracting for less than a year if they can provide a track record of regular work in a similar role.
Why Is it harder to get self employed mortgages?
Mortgages for self employed people is not an impossible task, but it is much more complex and requires more time to search the market for the best deal that is suitable to you and your needs. Using our specialist self-employed broker here at Alexander Southwell Mortgage services we can help look across the market for the most likely lenders that is best suited to your criteria based on your self-employment.
We have a lot of experience when dealing with the self employed therefore using a specialist could reduce the risk of your application being declined, meaning you are likely to be approved first time limiting any damage to your credit score.
There is no need to worry that your application will be any different to anyone else applying if you are self-employed.
In theory you have access to the same range of mortgage products as everyone else and you will still have to pass the lenders affordability and credit checks like any other borrower.
The key difference is because there is no employer to prove your income and job stability, more evidence may be required with regards to the income you receive then that of an employed role as self-employment is more tricky to prove, mortgage lenders need to make sure you are able to keep up repayments on your mortgage.
What do lenders look for when applying for a self employed mortgage?
Any mortgage lender will want proof of the following things before you apply for a mortgage: –
- Income Stability – a clear history of your income over the last 2/3 years and proof of the stability of such income
- The nature of your self-employment – your self-employed job role and is it sustainable
- The financial strength of your business – the growth of your business, does it show increases in income over the years or has there been shortfalls
- The ability of the business to generate sufficient income in the future – the ability that you will be able to maintain the future mortgage should you be approved.
How long do I have to be self employed for?
Lenders will define a ‘self-employed’ borrower as a person who has an ownership or interest of 25% or more in a business or someone who is an employee of a business with such share. Whilst the typical rule is to have held at least two years of steady self-employment it is not impossible if you have just one year.
If you have only been self employed for one year, then there will be some additional checks that the lender will require. For example, if you can prove that you have a history in a similar line of work and can document a greater or equal income in the new role compared to when you were on an employed basis. Having two or more years’ worth of self-employment will only improve your chances of being approved by a lender and give you greater access to the wider marketplace.
Applying for a self-employed mortgage for less than one year, then we would highly recommend speaking to an advisor when getting a mortgage as these can be very tricky.
How to prove my self employed income to get a mortgage?
When applying for a mortgage regardless of whether you are Employed or a Self Employed borrower you will be required to prove the income you have. If you are self-employed, then these are the most common requirements for the lender: –
- Company Accounts – Company accounts for self-employed are useful as these clarify the way your income is structure including retained profit, dividends, directors’ salaries or loans and any shareholders funds. This also gives the lender a clear idea of your year end finances and an indication of financial well-being.
- Salary, payslips and P60 – If any of your income in made up from any salary elements then these will show the salary amount on the payslip and any P60 will detail the gross income and net income, plus any deductions.
- SA302 – One of the most common proof of income documents for the self-employed. This certificate indicates your income and expenses plus gross and net profit for the year and gives your lender the information they need to complete the affordability assessment. Download a copy when you file your online tax return, or this can be requested from your accountant.
- Accountant Certificates – your certified accountant will provide these to the lender which can in some cases be used to verify income.
How will my income be calculated being self employed?
This will vary depending on the best suited lender . Each lender will use different criteria when assessing your income but, in many cases, they will base their calculations on the average of the last 2- or 3-years accounts regardless of your business set up. Lenders may also consider if you have a good track record or have left regular employment to start your self-employed role and whether this is in the same field.
The average income used does vary based on your self-employment i.e. sole trader vs Limited company. For example, if your business self-employment is based as a sole trader, then calculating your income will be much easier as all company profit is yours.
When considering your income, mortgage lenders will usually want to see at least 2- or 3-years averages of accounts. Typically, they will usually ask to see your SA302’s to evidence this. This does not mean if you have 1 year self-employment you are unable to get a mortgage it just means it may be more difficult to find the most suitable lender for you.
At the point of when we apply for your mortgage application we will check each lender individually and make sure mortgage deals that we are offering you fits with all of your information not just your income. Your credit record(credit rating), tax returns (SA302 Form) and we will also need to prove a healthy deposit, this will help your chances of getting accepted.
Independent Brokers For Independent Professionals
Alexander Southwell Mortgages is a “Whole of Market” mortgage broker.
Our independence gives you unprecedented flexibility of choice. It also gives you a huge advantage when you come to get a mortgage.
We know the challenges and frustrations that self-employed professionals face applying for a mortgage. When we apply for a mortgage we take price in packaging the self employed mortgage correctly.