How to get a mortgage if you’re struggling

Getting rejected for a mortgage can be very distressing. Every lender has their own hoops you need to jump through, and sometimes you might fall short of their key requirements.

It’s important to remember that being rejected by one lender doesn’t mean that you will be rejected by all lenders. If you’ve recently been rejected for a mortgage, consider if any of the following situations apply to you.

I have a poor credit score
My income is low
I only have a small deposit
I moved to the UK less than three years ago
I’m self-employed

Read on to discover how you can work around these common problems and finally get on the property ladder.

My credit score is holding me back

Your credit score is usually the first thing that mortgage providers will consider. Your credit score can differ depending on the credit scoring agency.

There are three main credit scoring agencies in the UK. They are Equifax, Experian and Call Credit. Your chosen lender might look at one, two or all three of them to asses the strength of your application.

A credit score helps lenders to understand your past relationship with money and borrowing. They can see things like your total amount of debt, missed credit card payments, utility bill arrears and even adverse credit history like CCJs. They can also check that your address history matches the information you provide.

If you have a poor credit score, this can impact your chances of being accepted for a mortgage. Before making an application to another lender, check your credit score with all available agencies.

Make sure the following details are correct and up-to-date.

Your name and address
Electoral roll details
Your current accounts
Closed accounts
Satisfied CCJs are removed if 6 years have passed.

If there are mistakes on your credit report, this can impact your ability to secure credit.

The following steps will help to improve your credit score.

Keep your details up-to-date.
Make sure you never use more than 50% of your total credit limit.
Avoid too many hard credit searches in a short space of time. This usually means waiting at least 90 days after every failed credit application.

When your credit score is improved, you can try applying for a mortgage again.

My income is low

Mortgage providers make their lending decisions based on affordability. If they have concerns that you won’t be able to afford the repayments on your existing wage, then they may reject your application.

Lenders also consider things like future affordability. If you lost your job and it took a few months to find a new one, would you be financially stable enough to keep up with payments? Or if interest rates increase, will the higher payments make your loan unaffordable?

Padding your income or being overly optimistic with your expenses is another warning sign to lenders.

A help-to-buy scheme might be more suited to your situation. You should also look at shared ownership as a way onto the property ladder.

I only have a small deposit

A mortgage lending decision is based entirely on risk. This is why house hunters with a big deposit are seen as more attractive. The large deposit helps to reduce the risk for the lender.

If you think you have been rejected because your deposit is too small, there are a few steps you can take.

Look for a lower valued property. This will mean that your loan to value is higher.
Save more money to increase your deposit value.
Look for a help-to-buy scheme that could boost the value of your deposit.
Use a shared ownership scheme to get on the property ladder with a smaller deposit.

I moved to the UK less than three years ago

One of the things that lenders look for is a history of ties to the UK. If you moved to the UK less than three years ago, you may struggle to secure a mortgage.

When filling in a mortgage application, you will often be asked for your address history for the past three years. If any of these addresses are outside the UK, you may struggle to secure a mortgage.

In many cases, you may simply need to wait until you have a history and evidence of living in the UK for more than three years before making your application.

Some lenders will be more inclined to accept applications from those with less history in the UK. Only by working with a specialist broker can you get access to these lenders.

I’m self-employed

The self-employed often struggle to prove their earnings and convince mortgage providers that they are a safe bet. Unlike a monthly salaried job, freelance work is considered to be high risk. Your earnings might fluctuate, so you could struggle to make the payments.

If you are self-employed, you will typically need to provide two-year’s of accounts as evidence of your earnings. Lenders might take an average of your last two year’s earnings, or they could look at the most recent tax year as evidence of future earning potential.

Being self-employed doesn’t have to mean the end of your mortgage journey. While some high street lenders might be reluctant to give you a mortgage, an increasing number of specialist lenders see the benefits of self-employed workers.

As the self-employed sector is growing, the mortgage industry is taking a little longer to catch up. By working with a specialist mortgage broker, you’ll be able to navigate the mortgage process with ease.

If you’re ready to make your homeowner dreams a reality, get in touch with Niche Mortgage Info to find out how we can help you get a mortgage if you’re struggling.

Can a self-employed person get a mortgage?

Before the financial crash of 2008 and the subsequent Mortgage Market Review, it was a lot easier for the self-employed to secure a mortgage. Self-employed individuals could use something known as a self-certification system to let lenders know how much they earned.

They could simply state their self-employed earnings and lenders would believe them without asking for proof. Unfortunately, this led to some people inflating their earnings in order to borrow more money.

Abuse of this system was one of the reasons for the credit crunch, which is why this type of mortgage was outlawed following the Mortgage Market Review. It’s still possible to get a mortgage while self-employed, but it is certainly more difficult than it was in the past.

What is a self-employed mortgage?

There is no such thing as a self-employed mortgage. Once you have passed the checks for a mortgage, you will have access to the same products and services as any other borrower. What is different about the lending process for the self-employed is how you prove your income.

When you are self-employed, you are responsible for your own taxes. When you submit your tax return, you will be given a SA302 form. This outlines your income for the tax period and is used by mortgage providers to determine affordability.

How do I prove my income?

Those in full-time employment have a fairly easy ride when it comes to proving their income. They simply need to show three month's worth of pay slips. The self-employed can sometimes be asked to share three year’s worth of accounts. This all depends on the individual lender.

Some lenders are more comfortable working with the self-employed and will ask for just one or two year’s worth of accounts. Some will even allow you to submit just 9 months of accounts if you have an accountant.

You can also provide evidence of earnings through things like work contracts or supplier contracts. For example, if you are a builder, showing that you have future work in the pipeline can help to bolster your application.

What else do I need to do?

Just like any other mortgage application, you will also need to ensure your credit score is strong. Show that you are responsible with money and try to avoid getting any CCJs. Staying within 50% of your total credit limit every month can also help to strengthen your case.

If you can save a larger deposit, this can also help your application. There are two ways you can do this. You can either wait longer before submitting your application and save money in the meantime. Or you can look for a property with a lower value. By choosing a lower value property, you might be compromising on certain aspects, but it can reduce the amount of loan to value you are applying for.

What if I am rejected?

If you are rejected by one lender, don’t despair! All lenders are different and it doesn't mean you cannot secure a mortgage. Get in touch with our specialist brokers to find out which lenders are best suited to your circumstances and how to boost your chances of securing a mortgage while self-employed.

Self employed and bad credit history mortgage

Are you Self Employed but also have a less than perfect Credit History?

The sad fact is that most people who are self employed and also have a less than perfect credit history often dismiss the idea of getting a mortgage, deeming it to be an impossible dream. Far from being out of the question, mortgage deals are available to people in this situation, so long as the right preparations are made before applying.

A specialist broker can help to guide you through the application process and ensure that you provide the necessary information that can really make the difference between success and failure.

To be as prepared as you can be, you should make sure you have the following.

Tax Overview (minimum 1 year)
Tax Calculation (most recent year)
Company Accounts* (minimum 1 year full accounts)
Projected Accounts for the current tax year* (these may be requested to be supplied by your accountant if you have less than 3 years history)
Current Tax year Salary/Dividend projection* (these may be requested to be supplied by your accountant if you have less than 3 years history)
Current Tax year projected accounts (these may be requested to be supplied by your accountant if you have less than 3 years history)
3 Months Personal Bank Statements
3 Months Business Bank Statements
3 Months Wage Slips (if applicable)
Credit Reports from the 3 main agencies – More info
IVA completion certificate (if previously in an IVA)
Bankruptcy discharge (if previously bankrupt)

*Only applicable if your business operates as a limited company

Since the laws in the UK regarding responsible lending came in to force, all mortgage lenders want to see is that any mortgage they offer is affordable to you. With a specialist brokers help and the right kind of proof, there’s no reason why you shouldn’t be successful in your application.

To see if you qualify, talk to a specialist mortgage broker who will understand your unique situation.

Dispelling Myths for Self Employed Mortgages

Before the credit crunch, self-employed people had no trouble securing a mortgage. The process was very simple and all they had to do was state their earnings as part of the application process. As a result, a lot of people were dishonest in order to be able to borrow more.

When the financial crash hit, house prices dropped, and many people were left up owing more than their property was worth. The mortgage industry was forced to reform and put better checks in place for all borrowers, but these checks seem to have hit the self-employed the hardest.

Nowadays, while it might be more difficult to secure a mortgage as a freelancer, it isn’t impossible as many people would have you believe. There are so many myths circulating, and we’re going to dispell all of them today. Starting with…

You can’t get a self-employed mortgage from a high street lender

This myth is common because self-employed people often give up looking for a mortgage if they have been rejected by one lender. All lenders approach mortgages in a different way, so you might not be eligible with one lender, but others might be more than willing to work with you rather than against you. And this includes high street lenders. If you are able to show year-on-year growth of net profit, then Santander and Coventry Building Society are both great options. Those running limited companies can also consider HSBC and Virgin Money.

You can’t get a self-employed mortgage with less than two year’s of accounts

All lenders will look at freelancer and self-employed accounts in a different way. While some will want to see two year’s worth of accounts, others will ask to see the last 12 months of earnings. Some will take the average of your past few years of earnings while others will look at the most recent year as an indicator of future earnings. In some cases, you can show future contracts as proof of earning potential. It all varies depending on the lender, which is why it is beneficial to work with a specialist mortgage advisor who can point you in the right direction.

You have to find a specialist “self-employed mortgage”

There is no such thing as a self-employed mortgage. Once you have passed a lender’s initial checks, you will be treated like any other lender and have access to the same products and services. While some lenders might specialise in working with the self-employed and business owners, the actual mortgage product is the same as other mortgages. This is another reason that self-employed people wrongly assume that they will not be able to get a mortgage. There is a false assumption that self-employed people can only work with lenders that expressly work with the self-employed.

You have to have a huge deposit for a self-employed mortgage

While this is true in some ways, a big deposit can help you to be seen as a better borrower. But this is the case for anyone seeking a mortgage. If you can offer a bigger deposit, you will be a lower risk borrower and the lender is more likely to offer you a preferential rate. This is because a large deposit offers greater protection in the event the value of the house falls. While there are mortgages available for those who can only afford a 5% deposit, these mortgages will be more expensive. If you can secure a deposit of around 20-30% you will find that the interest rate on offer will be much lower.

If you are self-employed and looking for a mortgage, shop around for the best deal and never assume that a rejection from one lender will mean all lenders will reject you.

UK mortgage market is opening up for freelancers and self-employed

Since the end of the self-certification mortgage, the self-employed have had a harder time securing mortgages. This can be heartbreaking for those keen to get on the property ladder, buy their first home, or diversify their income with a rental property. According to a recent study by The Mortgage Lender, as many as 71% of freelancers said that they felt discriminated against for being self-employed.

It could be that the UK mortgage market has an image problem. One in four surveyed said that they had been put off looking for a mortgage because they assumed it would be more difficult. It’s clear that there is no shortage of horror stories about the loops company owners have to jump through in order to get on the property ladder.

In reality, there are plenty of mortgage providers who are willing to work with the self-employed. Those who are rejected by one mortgage provider would be wise to continue their search, as not all providers treat the self-employed the same way. Shopping around could be all that is needed to beat the perception that self-employed mortgages are difficult to come by.

The biggest obstacle to securing a mortgage as a freelancer or self-employed individuals is proving your earnings. While a full-time employee can simply show their job contract and pay slips, the self-employed need to provide around two-year’s worth of accounts. In some cases, the owner of a limited company might have a harder time securing a mortgage than one of their own employees.

Those looking for a mortgage might not be aware that many high street lenders regularly work with the self-employed. And as this sector of the economy grows, they are seeing this as more of an incentive to consider applications from the self-employed. In the case of sole traders who can show a steady increase in their net profit, Santander and Coventry Building Society are both great options. Both will look at your most recent year of earnings, rather than taking an average of all, which can significantly impact how much you can borrow.

Limited company traders typically fare better with the likes of HSBC and Virgin Money. Both lenders will consider your salary and your share of net profit, rather than looking solely at dividends. For those with 100% shareholdings, the options become even brighter as most lenders will look favourably on this situation.

One of the biggest problems freelancers and the self-employed face is proving their income. A common myth is that prospective borrowers will need a full 24-month’s worth of accounts to be able to apply. In reality, there are plenty of lenders that will work with self-employed individuals who have only been trading for one year.

Kent Reliance, Aldermore Bank, Kensington, Vida Homeloans and Precise Mortgages will all consider borrowers in these circumstances. Every case is considered on an individual basis, and your trading history is only one part of the picture. Lenders will also look at the size of the deposit, credit history and affordability.

Unfortunately, the self-employed are still considered higher risk, as their earnings can fluctuate more than those with a steady salary. However, some will see this as a benefit, particularly if you can show that your net profit is increasing year-on-year. For this reason, many self-employed mortgages will incur a higher interest rate. It’s still worth shopping around, as every mortgage provider will treat lenders different.

With self-employment on the rise and more people choosing to become their own boss, it makes sense that the mortgage industry is trying to catch up. While it might not be as easy as it was in the days of the self-certification mortgage, where borrowers could just state their earnings without providing any evidence, the mortgage industry is heading in the right direction. There still needs to be a balance between responsible lending and fair treatment of freelancers.

What’s important is that lending is fair and responsible, as no one wants to see another market collapse as the result of irresponsible lending. The good news for freelancers and the self-employed is that mortgage providers are starting to catch on. There will always be mortgage brokers that specialise in working with the self-employed, but the high street banks are also starting to keep pace which is making the industry more competitive.

If you’re a freelancer and thinking about getting a mortgage in your first year of trading, the best thing to do is to shop around and speak to many different mortgage providers. Work on building a strong credit score, clear your short-term debts and focus on saving for a larger deposit. It might not be equal footing with salaried workers just yet, but the good news is that the market is heading in the right direction. Shop around and don’t take a single rejection as a sign that you cannot secure a mortgage.

Newcastle BS expands self-employed mortgage range to Help to Buy and buy-to-let

It’s a common misconception that there is a specific mortgage for the self-employed. In reality, the self-employed are given access to a smaller range of lending products, but once they pass the initial checks, they are treated the same as any other borrower. The good news is that Newcastle Building Society is expanding the range of mortgages available to the self-employed. This marks a huge step forward for the self-employed community, which is growing every year.

This new range of mortgages is specifically designed to help the newly self-employed. This means that anyone with one full year of accounts and with under two years of trading history will be eligible. The newly self-employed will now be able to access the popular Help to Buy mortgage and a buy-to-let mortgage.

The new range of mortgages

The Help to Buy mortgages will feature a pair of two-year fixed rate products at 75% LTV (loan to value). It is hoped that the Help to Buy scheme will help first-time buyers to get on the property ladder while the buy-to-let mortgage will help more self-employed people to diversify their incomes by becoming landlords.

More help for the self-employed

With more people choosing to go down the self-employed route than ever before, the mortgage industry is struggling to keep pace. Some lenders, like Newcastle Building Society, will also look to other evidence of income to help support and application. This means they will consider future work contracts or retainers as proof that your income will continue as normal or increase. They also recognise that income will not be the same for the self-employed as it is for salaried workers. All of these steps help to make it easier for the self-employed to access the same financial products as everyone else.

What happened to self-cert mortgages?

The self-cert mortgage has been banned in the UK since 2011. Before the credit crunch, the self-employed could secure a mortgage by simply stating their earnings. No proof was required, and this led to some people cheating the system and borrowing more than they could afford. As a result, this type of mortgage has now been banned and the self-employed have to provide evidence of earnings. Unfortunately, the new checks unfairly penalise the self-employed for choosing to be their own boss.

Move to individual assessment

The new products launched by Newcastle Building Society were also accompanied by a shift in the way self-employed individuals are assessed. Rather than enforcing a blanket list of requirements and automatic exclusions, the Building Society has committed to considering every applicant on their own merits. This is a unique approach to self-employed mortgages that is not yet widespread in the industry.

How to increase the chances of securing a mortgage

The self-employed face a unique challenge as the mortgage industry struggles to keep pace with the changing workforce. In the meantime, there are steps individuals can take to increase their chances of securing a mortgage. First, self-employed individuals should shop around and not assume that one rejection means that all providers will reject them. Second, they should pay close attention to their credit scores and make any corrections before submitting an application. And finally, they should make sure their accounts and up-to-date and accurate, as this is the only measure of income that a lender can consider.

While it might be more difficult, it is in no way impossible to secure a mortgage when you are self-employed. You may need to just through a few more hoops, but if your dream is to own a home, then it will all be worth it in the end.

Newly Self-employed: How To Secure A Mortgage

The process of buying a home is complicated at the best of times. Throw self-employment into the mix and you’ll have a recipe for months and months of headaches. The reality is that there isn’t a specific type of mortgage for the self-employed. It’s just that they are treated quite differently from their salaried counterparts.

Imagine those with a full-time job being asked to produce two year’s worth of payslips. Or being asked to have a chartered accountant present their tax return. Or being asked to explain the increase in earnings following a pay rise. Or having their payrise disregarded in favour of taking an average of their last few years of earnings. It sounds ridiculous, but this is what self-employed people face every day. Business owners who run a limited company can often find it more difficult to secure a mortgage than the very same people they employ.

If you’re self-employed and want to take the stress out of sourcing a mortgage, follow these simple steps to get everything in order.

Do your research

While it’s true that there is no such thing as a “self-employed mortgage” there are some mortgage providers who are more inclined to lend to the self-employed than others. It’s not true that you should ignore the high street in favour of niche mortgage lenders. In fact, Santander and Coventry Building Society both have a strong track record of helping the self-employed to secure mortgages. If you run a limited company, you should consider HSBC and Virgin Money. Be sure to shop around and don’t assume that one bank turning you away means that all banks will turn you away.

Get your finances in order

It’s common for the self-employed to make legal adjustments to their tax in order to lessen their tax bill. When you are thinking about getting a mortgage, you want to avoid doing this. Many mortgage providers will base your earnings on how much you declared in your tax return. They might look at the last year or the last two years. You want this number to be as high as possible without lying as this will increase your chances of being able to borrow more.

Most mortgage providers will want to see at least two years of accounts. However, an increasing number are satisfied with 12 months if you can show evidence of future earnings. Some will even take employed earnings into consideration if you are working in a similar industry. For example, if you used to work for a company and then switched to contracting and work for the same company, this can count towards your evidence of earnings. This will depend on the lender, so if you are in this unique situation, you should make sure you shop around.

Clean up your credit report

Most people don’t even think about their credit report until the times comes when they need it to work for them. You can’t fix what you can’t see, so make sure you are signed up with all of the major credit reference agencies. These are Experian, Equifax and Callcredit. Once you can see how each credit reference agency views your file, you can move forward with confidence.

Fix any issues with your credit report and make sure all addresses are up to date. If there are any accounts still open which should be closed, make sure you get this seen to. If you don’t have much credit history, a credit card with a low limit can help. Spend a little every month and pay it off in full. This helps to build a history of making payments and makes you a safer borrower.

If you are self-employed, getting a mortgage might be a little more complicated, but it is possible, so you needn’t give up on your dream of home ownership just yet.

Mortgage lenders' income requirements for the self-employed

If you’ve found this page, chances are you are concerned about being accepted for a mortgage because you are self-employed. In this article, we will explore some of the things mortgage lenders are looking for when they make lending decisions and advise on ways you can help ensure your self-employed mortgage application is successful.

Mortgages for the self-employed used to be a lot simpler and had a higher acceptance rate. Self-employed individuals could self-certify their income to lenders, effectively giving borrowers the control to decide how much they should be allowed to borrow. These mortgages were often abused by people in order to borrow more than they could afford. They were subsequently banned in the UK following the credit crunch.

Now, self-employed borrowers need to prove their income in order to be accepted for a mortgage. This makes it difficult for the newly self-employed, as lenders will often take an average of their last few years of income when making a decision.

While mortgages for the self-employed might seem harder to come by, it isn’t impossible. If you are determined to get on the property ladder, there are always mortgage providers who will be willing to help you if you are able to jump through their hoops.

Income requirements for sole traders

As the name suggests, sole traders are one-man bands. If you set up your self-employed business as a sole trader, then calculating your income will be much easier as all company profit is yours to keep.

When considering your income, mortgage lenders will usually want to see at least 2 year’s worth of accounts. They will usually ask to see your SA302 form from HMRC. This is your end of year tax document which outlines your income and expenses and your tax liability.

Most mortgage lenders will either calculate your average income for the past two years if the most recent figure is higher. They might also just consider the most recent year’s total income. Some lenders will ask to see SA302 forms for the past 3 years and work out the average of all 3.

Income requirements for company directors

If you run a limited company, you will likely have a few different income sources. Most company directors take a basic salary and then dividends. Some directors choose to leave profit in the company, so it’s important to find a lender that understands these different income sources and will take them into consideration when making your lending decision.

From our experience of working with self-employed mortgage providers, we have found that Virgin, Woolwich, Clydesdale, Kensington, the Halifax and the Coventry are all open to applications from self-employed individuals. What’s important is that you speak with a mortgage advisor as soon as possible as they will be able to help you to understand your options. You might be declined from one lender and accepted by another, so don’t take an initial setback as a sign that you cannot get a mortgage.

Understanding your income

Your turnover is not your income, so don’t be caught in this common borrowers trap. Lenders will only look at the taxable portion of your income, meaning your profit.

Very few lenders will accept sales projections in lieu of the whole two-year’s worth of accounts, so it’s best to wait before applying for your mortgage. It doesn’t seem fair that you have to be running a business for 2 years before getting a mortgage, whereas a full-time employee only needs to have a job for around 3-6 months before applying. It doesn’t seem fair but company directors will have a hard time getting a mortgage while the people they employ will have it much easier.

What is an SA302 statement?

When you file your tax return with HMRC, you will be provided with a calculation of your tax liability in the form of a SA302. This provides lenders with evidence of your earnings. A common problem that people face is that they sometimes legally adjust their income in order to pay as little tax as possible, but when it comes to getting a mortgage, they want to inflate their income as much as possible. If you are planning to apply for a mortgage, it is best to be upfront and honest about your earnings.

You can request your SA302 on your online government portal account, or you can request one be sent to your home. Requesting one by post can take up to 2 weeks to arrive. It’s best to have an accountant help you prepare your accounts for a mortgage assessment as they will know what steps to take to give you the best possible chance of securing a mortgage, However, it’s important that you understand your income and can explain things like seasonal fluctuations and dips or peaks in income when asked.

Do I have to get a SA302?

No, but it is often the easiest option. Most lenders will either accept your SA302 as provided by HMRC, or a tax calculation that was taken from professional accounting software. If you have your own accountant, they will usually be able to help you to prepare your accounts for a mortgage application. It’s always best to have the documents ready before you start your mortgage application as it can hold up the process.

What if I don’t have two year’s of accounts?

Very few lenders will accept self-employed borrowers with less than one year of trading history. You might have a very strong start to your company followed by a slump in sales. If you nearing the end of your second year of trading, it’s possible that a lender will consider your application if you also have a strong credit history, an existing relationship with the bank, or a healthy deposit. Every self-employed person is different, so the best first step you can take is to speak to a mortgage advisor who will be able to determine which lenders are most likely to accept your application.

How to get a mortgage when self employed?

It’s a wonderful feeling when you can stop paying rent and start paying your own mortgage. Owning your own home is a dream that many people have, but not everyone will achieve. Owning your own home gives you greater financial freedom and is a great investment in your future. For most people, the process is very simple. You approach a lender and tell them about your earnings and how much deposit you can afford. If they agree to lend to you, you can start your house hunt and before long you’ll be moving into your own home. However, for the self-employed, the process looks very different.

With more people than ever before going down the self-employed route, it’s an issue that is going to arise with more frequency. So, here are the basic steps for getting a mortgage when you are self-employed.

Get your accounts in order

In the past, the self-employed could use something known as the self-cert mortgage, but this has now been banned in the UK due to its widespread misuse. When individuals could simply state their own income without proof, some people used this to borrow more than they could afford. For this reason, self-cert mortgages were banned following the financial crash.

Most lenders will want to see at least two year’s worth of accounts for your self-employed business. They will usually accept your end of year form, know as the SA302. They might also want to see your accounts prepared by a registered and/or chartered accountant. This is the only way lenders have to prove your income, so make sure that your accounts are up-to-date and accurate.

It’s common for people to make legal adjustments to their income in order to lessen their tax liability, but this will work against you if you are trying to get a mortgage as it will appear that you earn less and lenders will, therefore, want to lend you less.

If you have more than 1 year of accounts, but less than 2, then lenders might be willing to make a projection based on the information they have or take the first full year’s income as the final amount. If you have more than one year’s worth of accounts and the numbers differ every year, the lender might take the most recent year as your annual income.

Pay attention to company structure

The way you have set up your company will have a huge impact on your mortgage possibilities. If you are a sole trader, then all of your income minus your costs will be counted as your annual income.

If you run a partnership, then only your half of the company profits will be counted as your income. And if you run a limited company and you leave money in the company at the end of the year, it’s important to find a lender that will consider this company-retained profit as part of your income. An accountant will be able to help you to structure your accounts in a way that is most attractive to lenders.

Check your credit score

All lenders will check your credit score before making any decisions. Before you start applying for mortgages, make sure you check your credit score and fix any mistakes which may appear on your record. For example, you should ensure that your address is up-to-date and that all unused credit accounts are closed. If there are any mistakes on your record you can write to the creditor and request that they fix it and give you written confirmation that it is a mistake. Once you have a strong credit report, your application will look a lot more attractive to lenders.

Secure an agreement in principle

If you are keen to start the house hunt but don’t want your mortgage application to delay the process then you can secure something known as an agreement in principle. This is a provisional agreement from your lender outlining what they would be willing to lend you, pending further checks. This will allow you to start your house hunt with a little bit of certainty. Once you have found a place you like, you can put in an offer, and if it’s accepted then you can put in your final mortgage application. An agreement in principle usually lasts around 3 months, so you may need to reapply if you don’t find somewhere suitable in the first 3 months.

Increase your deposit to increase your chances

If you are struggling to get accepted, don’t assume that no one will give you a mortgage. Some lenders are more experienced with self-employed individuals, so often it’s a case of finding the right lender or working with a niche mortgage broker. If you are struggling to secure a mortgage, saving a larger deposit can often help tip the scales in your favour. A healthy deposit of 20% along with two-year’s worth of accounts and evidence of regular income is often enough for many lenders.

Self-employed buy-to-let: what you need to know

Being self-employed can be very rewarding. You have the opportunity to set your own working hours and boost your earnings. This can lead to far more lifestyle and income flexibility than the majority of full-time employees.

For many freelancers, diversifying their income streams can be a good way to ensure a steadier income and get out of the feast and famine cycle. Becoming a landlord while self-employed is one way to ensure you always have a steady stream of income.

The availability of buy-to-let mortgages might be shrinking, but they are still a viable option and worth considering if you’d like to get on the property ladder and start earning passive income.

The rules for buy-to-let mortgages have changed a lot in recent years, but it is still possible to make a tidy profit from becoming a landlord. However, becoming a landlord when you are self-employed isn’t easy.

In many cases, company directors will have a harder time purchasing a buy-to-let property than their own employees. That said, it isn’t impossible, so if you’re serious about becoming a landlord, there are steps you can take to ensure your buy-to-let mortgage application is successful.

Lenders will often want self-employed individuals to jump through far more hoops than the average applicant. It’s important to remember that these extra steps are in place to protect you just as much as the lender. Lenders want to ensure they are being responsible and not lending to individuals who might not be able to afford the repayments in six-months time.

With the rise of the self-employed gig economy, more and more lenders are coming around to the idea that some applicants will have a self-employed work history. If you’re interested in becoming a landlord while self-employed, follow these simple steps… For self-employed mortgages this past post.

Get your records in order

Keeping accurate financial records is essential as a freelancer, but it becomes even more important when the time comes to apply for a mortgage. Any lender will want to see at least two year’s worth of financial records, so it’s best to prepare this before you make your application.

In addition to your financial records, lenders will also want to see some other important documents. You should be prepared to present the following in support of your application:

Company accounts for the past 2-3 years. This will vary depending on the lender, but most will want to see at least two year’s worth of accounts.
Bank statements showing regular income
SA302 statements for the past 2-3 years. These are statements from HMRC detailing your tax liability and, therefore, your income.
Evidence of your deposit
Photo ID and proof of address

Is a self-cert mortgage an option?

Self-cert mortgages were designed for borrowers with irregular income, such as the self-employed. This type of mortgage helped many contractors and freelancers to get on the property ladder. Lenders trusted mortgage applicants to accurately represent their income in their application.

Unfortunately, these were widely abused and led to many people applying for more than they could afford. Imagine if you had a strong start to your business but then the hype wore off and your profits dropped. If you applied for a mortgage based on the first few months of trading, you might soon find that you can’t keep up with repayments. For this reason, many lenders will either take the average profit for the past two-years.

This type of mortgage was banned in 2011 amid concerns that lenders were being irresponsible by not confirming income. Lenders must now carry out in-depth affordability checks. You can still apply for a self-cert mortgage through some European providers, but this would not be covered by the same protections as a UK mortgage. With Brexit looming on the horizon, it would be wise to consult with a mortgage provider before going down the self-cert route.

How much can I afford to borrow?

If you aren’t sure what a lender is likely to give you, it’s a good idea to speak with a mortgage advisor. They will be able to look at things like your credit report and your SA302 statements and arrive at a figure that is likely to be accepted by a lender.

Many people head straight to the banks and are disappointed to be turned down for a self-employed mortgage. It’s important to remember that some banks are more likely to lend to self-employed individuals than others. So, a rejection from one lender doesn't mean that you are ineligible for a mortgage. It just means that you might need to adjust the amount you are applying for or try a different lender.

A good mortgage advisor will be able to point you in the direction of the banks and lenders most likely to help self-employed individuals.

Buy-to-let mortgage restrictions

If you are planning to let your property, it’s important to ensure you have the right mortgage. A buy-to-let mortgage will typically be more expensive than a residential mortgage. This is because of the higher risk to the banks. Essentially, you are relying on the rental income to pay the mortgage, but this isn’t always guaranteed.

You will also need a larger deposit for a buy-to-let mortgage. This is typically around 25% of the property value. Some of the best deals require a 40% deposit. Often, the more deposit you can afford, the better rates you will be able to secure.

Things to consider

It’s always best to get your documents in order before applying for a buy-to-let mortgage. It can take up to two weeks for SA302 forms to arrive, so you don’t want this to delay the application process.
Some mortgage providers will require you to have your financial records prepared by a chartered accountant. Bear this in mind when selecting your accountant.
If you’re in full-time employment and thinking about going self-employed, think carefully before taking the plunge. Most mortgage providers require at least two full year’s of accounts before they will consider your application. If you’re thinking about going self-employed, it might be easier to stay in full-time employment until you have purchased your property and let it out. You can then use this financial freedom to make the switch to self-employment.
If you are a company director and you take a basic salary, this often isn’t enough to put you in the full-time employed category. You will still be classified as self-employed and will need to jump through the same hoops. It’s also important to find a lender that will include income from other sources such as dividends and retained profit.
Some lenders will have minimum income requirements for individuals and couples. If one half of the couple doesn’t meet the income requirement, it might be best for one party to apply for the buy-to-let mortgage on their own if they can afford it.
If you already own a property and are looking to expand your portfolio then you should always approach your existing lender first. It’s always easier to work with a lender if you have a pre-existing relationship and a track record of making payments on time.
If you have been in the habit of legally adjusting your income in order to reduce your tax liability, you will need to stop this. When applying for your buy-to-let mortgage, lenders will look at your tax liability as proof of your income so you will want this to be as high as possible, even if this means paying more tax.

A buy-to-let mortgage can be more expensive than a residential mortgage, so it’s important to ensure that you have chosen a property that will deliver a strong rental yield for years to come. It might be more difficult to get a buy-to-let mortgage when you are self-employed, but it isn’t impossible, you just need to know where to look.