Self Employed Mortgage: How Much Can I Borrow?

Applying for a mortgage while self employed used to be a very simple process. The applicant could simply state their self employed income and then the lender would trust that this was true. Sadly, the self-cert mortgage was widely abused and many people were using this system to apply for more money than they could afford.

In 2011, the self-cert mortgage was banned. The self-employed now have to work a lot harder to prove their income for a mortgage. While this might seem unfair, all of these changes were made to protect the self employed.

While business might be booming on month, the nature of freelance work is such that the following month could be a lot quieter. With sporadic income, you may find that your mortgage is easily affordable one month and a strain on your finances the next.

To protect freelancers and the self employed, lenders now carry out strict affordability checks to ensure that your mortgage payments will remain affordable. With this in mind, let’s look at how mortgage affordability is calculated and what you can do to make this work for you.

How much can I borrow?

Most lenders will allow people to borrow between 4 times their annual income and 6 times their annual income. This will all depend on your individual circumstances. For example, newly qualified doctors may be able to access a higher multiple because their earnings are likely to increase a lot over the course of their professional life.

What many self employed individuals find unfair is that they will need to provide evidence of their accounts for the past few years. The lender may then take an average of these annual earnings to estimate your future earnings. Or they might take the lowest annual earnings as their final figure. Even if your earnings are consistently growing, lenders will be reluctant to estimate your future earnings.

If you have been self employed for less than one year, you will need to work a specialist mortgage broker to find a lender that will help you to get the best possible deal.

How can I prove my income?

Most lenders will ask to see annual accounts from the past 2-3 years. This is often in the form of an SA302 form. This form is provided by HMRC and outlines your tax liability based on your self assessment tax return. If you work with an accountant, you could also ask them to prepare your accounts and confirm your income with your chosen lender.

When completing your self assessment tax return, it’s important to ensure that you are accurate and honest with your income. While you might want to minimise your tax bill, this annual income figure will be used to calculate how much you can borrow.

What if I am the director of a limited company?

If you run a limited company, it’s important to find a mortgage provider that understands your income. Directors and partnerships will often have different income sources. This can include dividends and company retained profits.

All of these different income sources will need to be factored in to your affordability calculations. If you don’t work with the right lender, then you could end up being offered a multiple of your basic monthly salary instead of a multiple of your total income.

Where can I go for advice?

At Niche Mortgage Info, we connect individuals with the right mortgage broker for their needs. This website is a great place to start to find out more about self employed mortgages. And if you’re ready to start your journey, we can connect you with a broker who fully understands your needs.

Joint Mortgage - Getting a Mortgage with A Self Employed Partner

You may have heard the myths that getting a mortgage when you are self employed is more difficult. Some might even say it’s impossible. If you or your partner is self employed and you are hoping to get on the property ladder, you’ll be pleased to learn that this isn’t entirely true.

The process of applying for a mortgage is different for the self employed. But if you or your partner meet the requirements and the loan is affordable, you should have no trouble securing your mortgage.

What is a joint mortgage?

A joint mortgage will have two people on the application and both individuals will be responsible for making the payments. If one party will pay more towards the property, you can decide during the home buying process how to share the equity.

When applying for a joint mortgage, lenders will carry out checks on both parties to ensure that the mortgage is affordable. The benefit of applying for a joint mortgage over a single mortgage is that it allows you to combine incomes. This will mean you are able to buy a more expensive property than if one of you were to apply on your own.

Who can apply for a joint mortgage?

You don’t have to apply for a joint mortgage with your spouse. Unmarried couples are able to apply for a joint mortgage. Some lenders will even allow groups of up to four people to buy a property together. If you and a group of friends wanted to purchase a property you will all live in together, a joint mortgage could be one option.

When making a mortgage decision, lenders will look at a number of factors, including:

The amount of deposit
Affordability
Credit history of both applicants
Property type
Employment status

Is a self employed mortgage different?

When applying for a mortgage, lenders will want to know about your income. If you have a permanent work contract, you will simply provide details of your contract and evidence of past payslips. The lender will then calculate affordability based on your annual salary.

If you are self employed, this process is a little more complicated. Lenders will need to see evidence of your self employed accounts for the past 2-3 years. They may also want to see retainer contracts or future work contracts.

As a self employed worker, your income may be sporadic. Lenders will want to see that you don’t have any gaps in your earnings history.

How much will we be able to borrow?

If you pass the initial affordability checks, you will then be able to start thinking about how much you can borrow. This will all depend on the lender you choose. Some will allow you to borrow up to 4x your annual salary and some will offer 5x your annual salary.

If you or your partner is self employed and one is earning enough to make the application on their own, it can often be easier to proceed in this way. This is particularly true if you or your partner have not been self employed for very long.

How much deposit will we need?

As with any mortgage application, the more deposit you can provide, the better the rates you will be offered. The minimum you should consider saving would be 5% of the property value. If you can increase this amount to 15-20% of the property value, you are more likely to be accepted and to be offered a good deal.

Applying for a joint mortgage when one person is self employed might be a little bit more complicated, but it’s certainly not impossible. You can find out more about applying for joint self employed mortgages with Niche Mortgage Info here.

Buy to let mortgages for first time buyers (first time landlord BTL mortgage)

If you are thinking about getting on the property ladder, you might be tempted by the unconventional method of purchasing a buy to let property first. Perhaps you don’t want to be settled in one place but still want the security of owning your own property.

If you choose the area wisely, you could charge enough rent to cover the mortgage and then enjoy a property that is gradually increasing in value. But is this even achievable if you’ve never owned a property before?

In this article, we will look at how first time buyers can head down the buy to let mortgage route. You can read more about first time buyers and BTL mortgages here.

What is a buy to let (BTL) mortgage?

A buy to let mortgage is a mortgage against a property that you do not intend to live in. This type of mortgage is often intended for those who plan to let out their properties. The amount you can borrow is often linked to the amount of rental income you can expect to receive. In general, the rental payment will need to be 25-30% higher than the mortgage payments to be considered affordable.

Can I get a BTL mortgage as a first time buyer?

Many lenders will want you to have experience owning your own home before they will grant you a buy to let mortgage. However, some lenders will consider a buy to let mortgage for those who are also first time buyers.

Being a first time buyer doesn’t rule out the possibility of securing a buy to let mortgage. Instead, it simply reduces the number of lenders you can approach. You should be able to secure a buy to let mortgage if you satisfy the following criteria:

You want to invest in property
You understand the risks involved
You have a good credit rating
Your finances aren’t already too stretched with existing financial commitments
You earn more than £25,000 per year
You are under the age of 70
You have saved a significant deposit
You can afford the additional fees associated with a buy to let property

Is it easier to get a buy to let mortgage?

Some people think that a buy to let mortgage is easier to secure because it is often based on the rental income rather than being solely based on your personal income. In some ways, this is true, but lenders will also see a buy to let mortgage as higher risk than a residential mortgage. For this reason, it’s important to consider all of the factors before deciding if buy to let is right for you.

As a first time buyer, you will have access to schemes and funds to help you get on the property ladder. If you choose a buy to let mortgage, these schemes will not be available to you. Most people will not pay any stamp duty on their residential property as a first time buyer. However, if you choose a buy to let mortgage, you will have to pay stamp duty. It’s important to consider your options before you proceed.

How much deposit will I need?

Buy to let mortgages will require a larger deposit than a residential mortgage. As a rule, you should aim for at least 25% of the value of the property. Some lenders could ask for anywhere up to 60% of the value of the property.

The bigger deposit you have, the better rates you will be offered. If you want to increase your chances of being accepted, you should save as much as possible. Another alternative would be to set your sights on a less expensive property. However, you should keep in mind that this will command lower rental income, so it could end up being counterproductive.

Can I get a mortgage based on rental income?

While affordability calculations will factor into the lending decision, you shouldn’t rely on rental income alone. There will be other factors you need to consider that will not be covered by the rental income. You will need to pay for repairs and maintenance, landlord insurance, and you could have periods where the property isn’t tenanted. You should also factor in the possibility that you could have tenants but no rent.

In order to make sure the mortgage is affordable, lenders will want to see that you are covering at least 125-145% of the mortgage payment with rental income. This will help to cover any periods where the property is empty and also cover any unexpected costs.

Can I get a BTL mortgage if I have bad credit?

The short answer is yes. However, poor credit will limit your choices. Lenders will want to see that the mortgage is affordable, that you have a good history with money and that you have saved a significant deposit.

You can often let one of these factors slide a little, provided the other two are in good standing. Getting a buy to let mortgage as a first time buyer is a balancing act. While poor credit might not stand in the way for some people, it could be seen as a negative factor for others.

How can I improve my credit score before I submit my application?

If you are concerned that you credit score will hold you back, there are a few simple steps you can take to improve it. First, you will need to sign up to the three major credit referencing agencies so you can see where you stand.

You should also make sure you are on the electoral roll at your current address. This will help lenders to confirm your details and can prevent delays to your application.

Next, you should look at your spending habits and try to clear as much debt as possible. Switch all bills and financial commitments to direct debits so that you always pay everything on time.

And finally, close any accounts which you no longer use. A credit card with a large unused limit might make you look responsible, but this can actually make lenders nervous. If they were to agree to your mortgage, you could quickly run up a lot of debt and be unable to pay back your mortgage.

What documents do I need to get a buy to let mortgage?

To apply for your buy to let mortgage as a first time buyer, you will need the following documents:

Identification
Proof of address
Proof of income

Other documents may be requested based on your individual circumstances. Before applying for your buy to let mortgage as a first time buyer, you should speak to a specialist mortgage broker. They will be able to advise you on the best course of action. They will also be able to tell you which documents you are most likely going to have to provide. This can speed up the application process.

Can I live in my BTL property?

No. If you are purchasing a buy to let property, there are strict rules about who can live there. Lenders will often carry out checks to ensure that the borrower is not living at the property. This is considered mortgage fraud and it will breach the terms of your loan. In the worst case scenario, the lender could revoke the agreement and you could be asked to repay the entire sum in full. This would lead most people to default on their mortgage and they would lose their buy to let property.

Can I get a residential mortgage and then rent it out?

It is perfectly legal to rent out a home if you are a cash buyer or you have paid off the mortgage. If a property is still mortgaged, however, you have to be open and honest with the lender about who is living in the property. If you plan to live in your property for a short time and then rent it out, your mortgage provider may prevent you from doing this.

After a period of time, lenders may grant you with something known as “consent to let” or “permission to let” and this would allow you to rent out your property. This will usually only be at the end of your initial tie-in period. You may also be charged an administration fee to change the terms of your mortgage agreement.

If you aren’t sure if you want to live in the property, a better option could be to secure a residential mortgage as a first time buyer.

Can I switch from residential mortgage to buy to let?

This will all depend on your individual circumstances and your chosen lender. While some will allow you to change the terms of your agreement, if they decline, your only option would be to remortgage the property. Depending on your existing agreement, this could land you with large fees and penalties. An easier and cheaper option might be to wait out the terms of your agreement and then seek out permission to let from your lender.

If you’re ready to discuss your buy to let mortgage as a first time buyer, get in touch with Niche Mortgage Info today.

12 questions to ask your mortgage broker

When you first start the process of buying a home, you might be surprised to learn that not many people are on your side. Estate agents are working for the seller, so they will tell you anything you want to hear to get you to make an offer.

Banks and other lenders aren’t really the best source of help either, as they want you to take out a mortgage with them instead of their competitors. But when it comes to brokers, you can guarantee you’ll get some practical advice.

Before you start working with a broker, make sure you ask the following questions and that you are satisfied with the answers. Remember, brokers work on commission, so they only get paid when they secure an introduction. This means you can pretty much guarantee they want to get you the best possible deal. After all, their reputation and livelihood depends on it.

If you’re getting ready to start working with a mortgage broker, make sure you ask the following questions.

1. Are you regulated?

All brokers are required to be registered with and regulated by the Financial Conduct Authority. Before you start working with a broker, make sure that you check that they are on the FCA register. This will help to protect you in the event something goes wrong with your mortgage application.

2. How many lenders do you work with?

Some brokers will work with one lender, some will work with a select group of lenders and some will work with all lenders. A specialist broker with limited reach might sound tempting. After all, they will have in-depth knowledge of those particular lenders. But if you are looking for the best possible deal, a whole market broker will be able to give you the best options.

3. How much do you charge?

All brokers will charge a fee for their services. Some will charge you a fee, while others will take a cut from your chosen lender. The lender often passes this cost on to the borrower as part of their rates, so it is more of an invisible cost.

When working with a broker, you may be able to negotiate a deal whereby the first mortgage incurs a fee but remortgaging or securing a second mortgage in future is free of charge. If you are thinking long term, it’s worth asking for this option.

Buying a house can be an expensive process, but the broker’s fee will be paltry compared to the amount of money they will save you.

4. When is this fee due?

Make sure you are completely clear on how and when the broker will expect to be paid. In general, you shouldn’t be asked to pay anything up front. All fees should either be collected from the lender, or charged once your mortgage application has been accepted.

5. Do you work with…?

If you are in a niche group of applicants, now is the time to get specific. For example, if you are self employed or run your own business, it’s worth asking if the broker has experience working with people in your situation. Likewise if you already own a property, if you have a poor credit history, or if you are a contract worker.

6. What kind of mortgage can I get?

The best part of working with a broker is all of the insider knowledge they can share. You don’t have to navigate the small print in too much detail, because they can help decode it. Ask your mortgage broker what types of mortgage will be available to you based on your current circumstances. They will also be able to advise you on steps you can take to change your situation. For example, if you have very little credit history, they might advise taking out a credit card to build your credit.

7. What is the current interest rate?

Interest rates can be very confusing. Lenders will often try to tempt you with low interest rate offers which will increase after 4 or 5 years. This can make it very difficult to navigate the industry. It’s important to think about the lifetime value of the mortgage, not just the initial payments you will be making. This is where a mortgage broker can be invaluable. They will be able to help you determine what is affordable and what isn’t. They can also help you find a way to lock in a lower initial interest rate for longer.

8. What is affordable for me?

Affordability is key. A good broker will sit down and go through your finances to determine what you can comfortably afford to borrow. If you are applying with two applicants and two incomes, what would happen if one of you lost your job? These are the difficult questions that a mortgage broker will help you to answer so that you don’t become trapped in an expensive mortgage.

It all starts with being honest about your income and expenses on a monthly basis. Don’t be embarrassed to say how much you spend on certain items as this is key to determining what you can afford to borrow.

If you are self employed, a mortgage broker can help you to make your income look as regular and reliable as possible. And if you don’t have 3 years of accounts, they can help you find a lender willing to look at your application.

A mortgage broker can also give you advice on how to improve your credit score ahead of your application. These are all things that will make your application look more favourable in the eyes of a lender.

9. How much should I budget for fees?

As we’ve mentioned before, buying a house is an expensive business. There are surveys to think about, conveyancing, other solicitor’s fees and your broker fees. You may also need to budget for stamp duty and other move-in costs. Your broker can help you to break this down and make sure that you are prepared for the financial implications of taking on a mortgage.

Remember that not all fees will be due at the same time, so you can budget over a few months and ease the impact on your wallet.

10. What deposit do I need?

All lenders will require a deposit, but how much is a hotly debated topic. You might think it wise to try to get away with saving as little deposit as possible, but this can lead to higher rates on your mortgage.

The lender asks for a deposit to limit their risk. The more deposit you can provide, the less risk there is that they will be left out of pocket if you default on your mortgage payments. Some help to buy schemes will allow you to buy a house with as little as 5% deposit, but this is rare. Instead, you will more likely be aiming for a deposit of around 15-20% of the property value. This will mean you are only borrowing 80-85% of the property value.

A broker can help you to look for ways to maximise your deposit, either through help to buy schemes, or by setting your sights on a lower value property. Brokers are great at seeing the big picture and long-term thinking.

This is where their expertise can be valuable. Buying a less expensive starter home and getting a better deal on your mortgage can be a good strategy. It's far better than getting locked into a mortgage with poor rates. This type of mortgage will take you a lot longer to pay off.

11. Can my mortgage transfer to another property?

If you are thinking long term, you might already be planning another move. The idea of a forever home is slipping to the side. More people now accept that their needs will change over time. If you were to want to move house after a few years, check with your broker that your mortgage will transfer to your new property. This can reduce a lot of the fees associated with remortgaging.

If the mortgage will not transfer, then it’s worth negotiating a deal with your broker than any subsequent deals that they arrange will be free of charge. They will still have the opportunity to recoup their percentage from the lender, but you will only have to pay upfront fees once.

12. What else can you help me with?

Buying a home is a confusing time and it’s worth getting all of the advice you can. If there is anything about the home buying process that you find confusing, ask your mortgage broker if they can help you to decode it.

You might be confused about processing times, conveyancing, or the buyer’s part in the mortgage journey. As we’ve mentioned before, buyers often don’t have many places to turn when it comes to getting impartial mortgage advice. This is why working with an expert broker can be invaluable.

Not only will a broker help you to find the best possible deal, but they will also be on hand to clear up any confusion about the mortgage application process. You can also ask them questions about income, deposits and credit scores.

6 Facts About Mortgages in The UK

If you glaze over when the conversation turns to things like mortgages and finance, you’re not alone. Even those who work in the industry can find the chatter tiresome at the end of a long day. But if you want to get a great deal on your mortgage, it pays to get clued up.

We pride ourselves on offering straight-talking advice on the mortgage market. We don’t want to dazzle you with too much information, we just want to make sure you understand what is important to you. To that end, we’re going to share some interesting facts with you. These are things that not many people know, but it could save them time and money when it comes to securing a mortgage.

Having no credit history can hurt your application

The common misconception is that poor credit history is bad for a mortgage application and that no credit history is good. The reverse is actually the case. Poor credit won’t necessarily lead lenders to reject your application, but no credit history could.

This is because lenders want to see that you have been able to secure and pay back credit in the past. A few hiccups along the way won’t phase them, provided you have a strong deposit and steady income. But no credit history is likely to raise some eyebrows.

The self employed find it hardest to get a mortgage

Running your own business is tough enough, but when you learn that this can also make it harder to secure a mortgage it might make you wonder if it’s worth it. While it’s true that the self employed have it tougher, it’s not impossible to get a mortgage like some people would have you believe. You just need to make sure you’re speaking to the right people. There are some lenders who will be more than willing to offer mortgages for self employed with 1 years accounts.

Shopping around can save you a lot

Many people think that their pre-existing relationship with their own bank will lead to a great deal on their mortgage. Sadly, this isn’t the case. And even the lowest rates don’t always equal the best deal. It’s important to think about the lifetime value of your mortgage and consider all of the fees and bonuses available to you. Put simply, don’t assume the first offer you get will be the best.

Mortgage brokers are incredibly useful

People shy away from working with a broker because they assume it’s just another middleman lining up to take their cut. This couldn't be further than the truth. While the broker will charge a commission, they are some of the hardest working people in the mortgage business. Since their income usually relies on matching people with lenders, they always go above and beyond to help you find the best deal. And the best part is that they are experts in all things mortgages, so you don’t have to learn it all yourself.

Mortgage rates are volatile

When mortgage rates hit the news, it’s usually because of a huge change which has wide-reaching ramifications. What people don’t know is that mortgage rates are actually quite volatile and therefore changing all the time. If you have the option to wait, it’s always worth sticking around to see if rates fall again.

Paying off more can shave years off your mortgage

When you finally have your home and your mortgage, your mortgage repayments should really be seen as a minimum monthly payment. Paying extra into your mortgage at the beginning can shave years off the term of your loan. If you get a bonus at work or receive an inheritance, it’s worth putting some aside for your mortgage as it could save you a lot of money in the long term.

Remortgage to Pay Off an IVA

A lot of the time, when you have an IVA, a lot of lenders won’t consider you for a mortgage or a remortgage. But when you deal with a mortgage broker, they have a wider range of products and companies and can often find options for you. There are still questions about affordability, income and the property but it is possible to remortgage to pay off an IVA.

Do lenders consider remortgages on IVAs?

There are companies that will consider you for a remortgage when you have an IVA. They will need to go through all the normal information required for a mortgage and also look at the IVA. They will want to know the date of registration, size of the debt, date of the settlement if it is finished and what shows on your credit record.

You will need to have made regular requirement payments for the IVA for most lenders to consider you. And there may be a higher interest rate involved.

How soon can I get a remortgage after an IVA?

For some lenders, it is a flat ‘no’ if you have had an IVA, whether it is finished or not. Others require it to have been settled for a certain period of time, usually three years. However, if you plan to use the remortgage to pay off the IVA, then there are lenders who can help.

The more recent the IVA, the trickier it can be to get a mortgage. You may face a higher interest rate or need to have a bigger deposit or more equity in the house. Also, the amount they are willing to lend is often lower.

How to remortgage with an IVA

It is important to take a look at your credit score and file before you start. Some lenders recommend different credit reference agencies. It is worth knowing that creditors are only required to report information about your account with them to 2 out of the 3 agencies so it is worth looking at least two for any problems. In fact, checking all three can be the safest bet as if you provide a clean record from one agency then the lender finds problems from another, they can decline the mortgage entirely.

Once you have copies of your files then you can speak to your mortgage broker about what to do next. They will go through the normal affordability tests to see what kind of mortgage you can afford and then start to approach lenders they know will consider you.

IVA impact on credit

An IVA is taken as an alternative to bankruptcy and this usually means there have been some financial issues in the lead-up. It is also a way to avoid repossession of the house. This means there could be defaults, CCJs and debt management plans in your history. Lenders will want to know why this happened and what went wrong to help assess the likelihood of it happening again. This will play a part in if they accept you or what terms they apply to the mortgage.

How To Qualify For A Mortgage If You're Self-Employed - 2020

The self employed sector is booming. More and more people are choosing to break free from the chains of conventional employment and build their own business. While this might save you from the dreaded commute and give you the freedom to be your own boss, it’s not without its downsides.

Securing credit is one of the things that gets a little bit harder when you’re self employed. And this includes mortgages. If you’re self employed and want to get on the property ladder in 2020, now is the time to start preparing.

With a little preparation now, you could be ready to take steps towards being a homeowner in the new year. Read on to discover how to make sure you’ll qualify for a self employed mortgage in 2020.

Get your credit score in order

One of the first things that lenders will look at is your credit score. This helps them to determine if you are a high risk borrower. Your credit score gives them a snapshot of your current borrowing habits, and how well you repay your debts. No lending history can often be just as bad as poor lending history.

Sign up for a free trial with Checkmyfile to discover what the credit agencies already know about you. You can then fix problems with your file, start building your credit, or discover ways to boost your score. Even just being on the electoral register can help to boost your credit score.

Save a healthy deposit

By saving a larger deposit, you can reassure lenders that you are low risk. When you pay more up-front, you will be borrowing less of the full amount. This means that if you default on your mortgage payments, the lender will have less to recoup than if you had offered a smaller deposit.

As a self employed applicant, you can make sure you get access to better rates by offering a higher deposit amount. Aim for at least 10-15%, but 20% would be even better.

Clear old debts

When lenders look at your application, they want to see that the loan is currently affordable and that it will remain affordable in the future. This is one reason that old debts against your name can make it more difficult to secure a mortgage.

If you have other monthly obligations, such as an old credit card bill, then lenders might see this as something that could compete with your mortgage payments if your income were to go down. This is a bigger risk for the self employed as they are more likely to have irregular income.

Get your accounts in order

A person in full-time employment will only need to provide pay slips and a contract to prove their income. The self employed need to jump through quite a few more hoops. Most lenders will ask to see your accounts for a specific period, and this will vary between lenders.

If you are fairly lax with your accounting, now is the time to get everything up to date. If you don’t have a strong head for numbers, consider hiring an accountant. For a small monthly fee, they will manage your accounts and prepare your taxes. This can make it much easier to provide evidence of your income for a mortgage.

Be honest

When completing your taxes, it can be tempting to adjust your income to lessen your tax bill. While many of these changes are completely legal and encouraged in many self employed circles, this can impact your mortgage application. Always be honest about your income as the lender will use a multiple of your annual income to determine how much you can borrow.

Get a mortgage in principle

If you are keen to start the house hunt, you can apply for something known as a “mortgage in principle”. This is an agreement with your bank that says they will be willing to lend you a certain amount of money. You will need to pass their second round of checks in order to get the full mortgage.

This can be helpful as it allows you to start the house hunt process and then put in an offer if you find something that you like. If your offer is accepted, then you would return to the bank and complete the application process. This method is not without its risks, as you could be rejected further down the line, but it can be helpful to move the process forward.

Speak to the experts

Perhaps the best way to get yourself mortgage ready by 2020 is to find some expert advice. By working with a mortgage broker, you can find a lender that is accustomed to handling mortgages for self employed workers.

They will be able to give you advice on how to spruce up your credit score, how to get your accounts in order and how much deposit to save.

Using Rental Income to Qualify for a Mortgage

If you already have a portfolio of properties, you may be wondering about the possibility of using your rental income to secure a mortgage on another property. While it is possible to get a mortgage with rental income as your primary source of income, expect the bank to ask you to jump through a few additional hoops.

In this article, we will look at the circumstances that might lead you to use rental income to qualify for a mortgage. We will also share some top tips that will allow you to make the most of this opportunity and navigate the mortgage process with ease.

Can I qualify for a mortgage with rental income?

If you already own one property that is currently rented and you would like to secure a mortgage against another property, you may be able to use the rental income as a proof of income. In some cases, you may even be able to use potential future rental income to secure a mortgage. It all depends on the type of mortgage you are looking for and the requirements set out by the bank.

Can I get a residential mortgage?

If you already have a rental property and this is your main source of income, you may be able to use your rental income to secure a residential mortgage. A residential mortgage would only be granted if you intend to live in the property.

If you are still paying a mortgage on your existing rental property then it is unlikely that you would be able to get an additional residential mortgage using the rental income from your property. Banks are primarily concerned with affordability. If you are already paying one mortgage and this is your only source of income then they may see this as a red flag.

Can I get a buy to let mortgage?

The rules for a buy to let mortgage are quite different. As the buy to let mortgage is intended for landlords, some will allow you to use the future rental as proof of income. However, this isn’t always the case.

If you have existing rental properties, you may be able to use the rental income from these properties as proof of income. But this isn’t always as straightforward. Lenders need to limit their risk. And there is always the risk that your rental property could remain empty. This could lead you to default on your mortgage.

How do I prove rental income?

Banks often need more than just rental agreements and bank statements to prove that you have income from rental properties. Since most landlords are self employed, they will be treated like any other self employed individual. When you’re using rental income to qualify for mortgage payments, you should approach this as a business venture.

This means that lenders will want to see tax returns or SA302 forms as proof of income. Some will ask for SA302 forms for the past 3 years. Others might only ask for your income from the past year.

How much can I borrow?

Once you have passed the lender’s checks, they will use a standard affordability calculation to determine how much you can borrow. This will often be a multiple of your annual income. If you annual income varies, some might take the average over the last 3 years as your income. Others might take the lowest annual income from the last 3 years. This all varies depending on the lender.

As with all mortgage questions, the final decision will always be left with the lender. This means that you should shop around and speak to a few different lenders before making a final decision.

4 Deadly Mortgage Mistakes to Avoid If You're Self-Employed

Getting a mortgage is never easy, but when you’re self employed, it can feel like the odds are stacked against you. Gone are the days when you can waltz into a bank and request a self certify mortgage. This type of mortgage was phased out following the financial crash in 2007. You have to work a little harder to prove your income for a mortgage application.

Misconceptions around the self employed mortgage industry means that a lot of people put off getting a mortgage while they are self employed. Worse still, they make some of these incredible common mistakes. If you’re thinking about applying for a mortgage while self employed, make sure you don’t make these incredibly common mistakes.

Heading straight to your own bank

A lot of people assume that their own bank is the best place to start. After all, if you already have a relationship with the bank, you would assume they would be willing to work with you. But you could be missing out on a great deal if you head straight to your own bank. You also run the risk of your application being rejected.

Not all high street lenders work well with the self employed, so it makes sense to shop around for the best deal. One of the best things you can do is approach a mortgage broker. A mortgage broker will be able to help you navigate the lenders and find a bank willing to offer mortgages for self employed workers.

Adjusting your income

When tax season rolls around, many self employed individuals will make legal adjustments to their tax return in order to reduce their tax bill. If you are applying for a mortgage, most lenders will offer a multiple of your annual income as a maximum amount. If you have adjusted your income, this could be much lower than you can actually afford.

Make sure you are honest with your income and offer an accurate reflection of what you earn every year. But don’t be tempted to inflate your income as this can be just as disastrous.

Changing your business structure

Many self employed people start out as a sole trader. When the time comes to apply for a mortgage, they look to strengthen their position. So they change their business structure to a limited company. A limited company should sound more impressive, but this is actually a huge mistake.

By changing your business structure, you are resetting the clock at zero. Your past accounts as a sole trader won’t count for anything, and your new business will have no accounts and no filing history. If you’re applying for a mortgage, leave your business structure alone.

Spending big before you apply

Many people will apply for a mortgage in principle before they submit their main application. This will give them time to look at properties, put in an offer, and then submit the full application. If you decide to do this, then don’t assume that anything is final until you’ve signed on the dotted line.

Many people relax once they have their mortgage in principle and decide to spend a little. This is usually in preparation for their big move. However, you should try to avoid any big spending sprees before you submit your final application. This can be a huge red flag to lenders and it could lead them to reject your application.

A rejected application will also show up on your record, which can make it difficult to secure a mortgage elsewhere. If you’re not sure what your credit file looks like, you can sign up for free with Checkmyfile.

Getting a mortgage as a freelancer

Around 14.8% of the UK population is self-employed. With such a huge proportion of the population heading down the self-employed route, it’s important for mortgage providers to keep pace.

The self employed do not have simple and straightforward salaries, which can make it difficult for lenders to determine eligibility and calculate affordability. While it may be more complicated, more and more lenders are waking up to the idea that self-employed individuals are just as capable of paying back mortgages. If you’re a freelancer looking to get on the property ladder, read on to find out how to make this industry work for you.

How to get a freelancer mortgage

The important thing to remember is that there is no such thing as a “freelancer mortgage”. Instead, what you are looking for is a lender who will accept applications from freelancers. Once you have passed the application phase, the mortgage products are identical to salaried workers.

The easiest route to finding a mortgage provider who will accept your application is to speak to a specialist broker. We can help put you in touch with a mortgage broker who will be able to give you access to the full market, ensuring that you get the best possible deal.

Why is it harder for freelancers to get a mortgage?

Mortgage providers are primarily concerned with risk and affordability. If you can’t afford your mortgage repayments, then they might struggle to be able to recoup their money. This is why lenders ask borrowers to provide details of their income. For a salaried worker, this step is very simple. They simply provide their annual salary and then a breakdown of their monthly expenses. But for the self-employed, proving their income can be rather more difficult.

This is primarily because freelance income tends to fluctuate. You might earn a lot one month and not very much the next month. But over a whole year, you might earn more than your would in a 9-5 office job. To manage their risk, lenders will often ask to see multiple years of accounts for freelancers. This helps to offer some assurance than monthly fluctuations in income are not indicative of insecure income.

However, a rising number of specialist lenders mean that the industry is starting to catch up with new ways of working. While a traditional lender might ask for 3 years of accounts and a huge deposit, a growing number of lenders are relaxing these rules to make it easier for freelancers and the self-employed.

I’m a contractor, does this count as self-employed?

A huge problem faced by some workers is that their job isn’t clearly defined as ‘employed’ or ‘self-employed’. There is a grey for contractors which can make it difficult to get a mortgage. You could be self-employed, but only working for one client. In this case, should you apply as a freelancer or not? The simplest answer is this… if you take care of your own tax returns, then lenders will consider you to be self-employed. However, you may be able to use evidence of past contracts and contract renewals as further evidence of your income stability.

Few brokers have experience with freelancers

Not all brokers have experience working with freelancers, so it’s important to choose the right one. Whole of market means that they have access to all lenders, not that they have experience with all employment types. This is why it can be confusing for some freelancers.

Applying for a mortgage with the wrong lender can result in a rejected application. But don’t let this sway you. Another lender might be more than willing to work with you, so it makes sense to shop around and work with brokers who understand your needs. This is where Niche Mortgage Info comes in. We’re experienced in helping freelancers find the right broker for their needs.

How long do I need to be self-employed before I am eligible for a mortgage?

Lenders will take the length of time you have been running your own business as a key indicator of your financial stability. Many lenders will ask to see your accounts for the past 3 years, but some will consider 1-2 years. A very small number of lenders will be happy with 6 months of accounts.

If you have only recently switched to freelancing and you are experiencing fluctuating income, you may find it more difficult to secure a mortgage.

What if I form a partnership or limited company?

The way lenders calculate self employed income for mortgage applications will differ depending on whether you are a sole trader, limited company or partnership. For a sole trader, the majority will look at your net profit either before or after tax. For a limited company or partnership, the majority will look at your salary and dividends as proof of income. Some will also include your share of company retained profits to help boost your borrowing amount.

If you are self-employed as a sole trader, you will need to provide your SA302 forms as proof of annual income. If you form a limited company or partnership, you will need an accountant to provide evidence of your income.

What if I have a fixed term contract?

Some freelancers work on fixed term contracts, similar to that of salaried workers. Some lenders will accept this type of income, provided the contract has been renewed in the past or you have at least 6 months left on the contract.

If you have simply moved to a different working status but you have worked in similar roles in the past, lenders might be more willing to accept this as evidence of stable income. On a fixed term contract, your monthly income is more likely to be steady, which is an attractive feature for lenders.

How to calculate how much you can borrow

Once you have found a lender who is happy with your income and employment status, you will then need to work out how much you can afford to borrow.

Lenders will look at the following factors:

If you are a sole trader, lenders will look at your net profit, usually over the last 3 years. Some will take an average of the past 3 years and some will take the most recent year.
If you are a limited company director, lenders will look at your salary and dividends as proof of income. Some lenders will also include your share of any retained profits, allowing you to borrow more.
If you are part of a contractor, lenders will either look at the contract value or the day rate. For a day rate calculation, they will calculate annual earnings by multiplying your day rate by 5 and then multiply this by the number of working weeks in a year.
If you are an employed worker, lenders will look at your basic salary plus any other forms of income. They might only accept a percentage of additional income, depending on how regular it is.

How is affordability calculated?

Affordability calculations are how lenders decide how much you can borrow. In general, it will be a multiple of your annual income. Some lenders will allow you to access 4x your annual income while others will lend you 6x your annual income. How you calculate income is therefore very important when determining how much you can borrow.

For example, a contractor with a day rate of £250 might be able to access between £230,000 and £345,000

How did we work this out?

Day Rate (£250) x 5 = £1250 x 46 (working weeks) = £57,500 annual salary.

4 x this salary would be £230,000 and 6 x this salary would be £345,000

This could mean the difference of £115,000 depending on which lender you approach.

Can I get a buy to let mortgage when freelancing?

Provided it is affordable, you should have no trouble securing a buy to let mortgage while freelancing. Some lenders will have minimum income requirements for buy to let mortgage which can range from £15,000 to £25,000. It can be more difficult for those on variable income to provide evidence that they meet this earnings threshold.

If you already own your own home, some lenders will consider you provided the rental income will be enough to cover the mortgage payments. If you don’t already own a property, then your application will be considered like any other mortgage application. You will not be able to use potential rental payments as proof of affordability.

This is because lenders are concerned that self employed borrowers would use a buy to let mortgage to sidestep the requirement to prove that a property is affordable. On the other hand, if you already have a portfolio of properties, it could be possible to secure a mortgage without providing any evidence of income.

Next steps

If you want to get on the property ladder as a self-employed individual, the first step is to get in touch with the right broker for your needs. We can help put you in touch with a wide range of brokers who are experienced in handling freelancer mortgage applications.