Self Employed Mortgages
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What is a Self-Employed Mortgage?
Although there is no mortgage product specifically aimed at the self-employed, most mortgages that are available to other applicants are also available to self-employed people.
Self-employed applicants may find it more difficult to prove income stability. Lenders have an alternative assessment criteria, however, meaning that most self-employed applicants will be considered on their own merit.
How Will Your Self-Employed Application be Assessed
As a self-employed worker, your application is assessed in terms of affordability and your personal financial circumstances, much like any other applicant.
In order to assess your financial stability, lenders require at least two years of accounts as evidence of income. If you do not ordinarily use an accountant, you will need a certified accountant to sign off your accounts before submitting them as part of a mortgage application.
Many lenders, particularly high street banks, will require a trading history of three years plus. The exact assessment criterias will vary slightly between lenders, however and you may find more leniency with specialist lenders.
If you’re a sole trader, the lender will need a copy of your SA302 forms for at least one year of trading. They will use this to calculate your loan amount.
If you are a business partner, you will need to own at least 25% share in the business to qualify for mortgage application purposes. Your share of the net profits from the partnership will be used to establish your loan amount.
If you are a self-employed business owner operating as a limited company, it’s important to note that your company profit will not be considered as part of the application unless you are the company director.
In all other cases, only personal income is used to calculate your available loan amount, so you will need to show payslips and bank statements.
How much can you borrow?
Your overall affordability as well as your credit score will determine how much you can borrow. Lenders will look at your financial circumstances as a whole, as a high income is irrelevant where your outgoings outweigh it.
There are other factors, such as the type of business you operate, whether you apply for a mortgage alone or with a partner and which lender you approach, which affect your loan amount. Being self-employed in itself, however, should not affect the amount you can borrow on your mortgage.
What deposit will you need?
You won’t need to supply a higher deposit than other applicants, however, whatever your circumstances, offering the highest deposit you can possibly afford will always be beneficial.
It’s useful to know that deposit requirements will vary depending on the type of mortgage you choose. For example, with a Help to Buy mortgage, you only need 5%, but more generally, between 10% and 15% is needed.
How do you Improve Your Chances of Being Accepted by a Lender?
Increase your income
Of course higher income will always equate to a higher loan, however, as the owner of a limited company, paying yourself a higher salary or dividends amount in the period prior to your application can be beneficial to your application.
The other benefit of taking more of the business profits for yourself is that it can allow you to save a higher deposit, which also improves your chances of acceptance.
Put off any major business changes
Lenders look for stability and recent restructures could be a red flag. Particularly if you plan to change your business type, delaying this change until after your mortgage application is advisable.
Prepare your finances for assessment
As mentioned previously, mortgage lenders will want to establish a clear view of your financial stability. As you will need to submit your accounts as part of the application, it’s a good idea to prepare them in advance.
Improving your credit rating
Your credit rating will also impact your application, so it’s a good idea to review your credit file a year in advance of your application. This way you have time to improve your score, if necessary.
How can a Mortgage Broker Help Self-Employed Applicants?
If you can find a Mortgage Broker with specialist experience in self-employed mortgages, they will be best placed to seek out those lenders whose acceptance criteria most closely match your circumstances. They can review your application in advance and highlight any potential issues you may have.
Mortgage Brokers have a whole market view of the mortgage deals available to self-employed applicants and can therefore find the most competitive rates for you.