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.

A Guide To Mortgages for The Self-Employed Without Accounts

For many people, being self-employed is all about freedom. You have the freedom to choose your working hours. You have the freedom to work from home, a coffee shop, or to rent your own office space. While these are all wonderful perks of the job, there are some areas that aren’t as easy to navigate when you are self-employed.

When it comes to buying a home, being self-employed can be seen as quite a burden. Applying for a mortgage without a fixed full-time job means that you’ll need to jump through a lot more hoops in order to prove your income. However, if your business is quite new, then this can get even more complicated. Mortgage providers often want to look over your books. So if you don’t have at least two year’s of accounts, it can be difficult to prove your income.

Remember that mortgage providers want to see that you’ll be able to afford to keep up with payments. For the self-employed, this means that they are going to want to see that your business has a track record of success and that you will have the means to continue to support yourself in future.

Some companies out there will offer a business loan which can be used specifically for a mortgage. While this is a possible route, you will need to consider if you want to entwine your home with your business. The loan will often be more expensive than a traditional mortgage and the provider will often want to see a substantial amount of collateral, usually your property.

brand new business

Can I get a self-employed for a brand new business?

If you have yet to file a tax return for a full year of trading then you will struggle to find a mortgage provider that will consider your application. Lenders have to show that they have been responsible lenders. This means that they always base their lending decisions on evidence of affordability, which doesn’t always seem like common sense.

Without evidence of your income in an official document, such as a tax return, it can be difficult to prove that you have regular and reliable income. Your business might be reliant on income from just other company or client, which puts your business at risk. Your business might be seasonal, and the first six months of trading might look more favourable than the next six months. These are all things that lenders need to consider, so the more evidence you can give them, the better.

Secure your Agreement in Principle (AIP)

Once you are nearing the end of your first year of trading, you should have a tax return to show your income and a full year of accounts at your disposal. At this stage, you might be able to secure something known as a mortgage Agreement in Principle (AIP). This is one way to get an indication from your lender of how much they would be willing to lend you. It lasts for three months and is used to help speed up the home buying process. It allows house hunters to start their search with a budget in mind. Once they have chosen their property, they can then make the final mortgage application.

How does this help self-employed house hunters? Since it lasts for three months, you can start your search for your home before the end of your first year of trading. It allows you to work out, before you actually put an offer in on a property, how much you can afford to borrow.

difficult to get a self-employed mortgage

Why is more difficult to get a self-employed mortgage?

Since it’s harder for the lender to confirm how much you earn. It makes it harder to determine if you are a high-risk borrower. If you’ve been trading for more than three years. Or you have a trading history and accounts to back up your application. For newer businesses, it’s far more difficult to determine future earning patterns.

A Guide To Mortgages infographic

Why can’t I just give them an estimated income?

Self-certified mortgages are now a thing of the past. Since the recessions and the Mortgage Market Review, these have been phased out as they were prone to abuse. The self-cert mortgage allowed borrowers to tell the lenders what they were earning without providing any proof. This allowed people to inflate their incomes in order to be able to buy a bigger property.

maximum I can borrow when self-employed

What is the maximum I can borrow when self-employed?

Once you can prove your income and the lenders are satisfied with the evidence provided, you will often be treated like any other applicant. Most applicants can borrow between 4-5x their annual income. If you can offer a larger deposit, this is also likely to help your mortgage application and can help you to secure a better mortgage rate. Even though you might feel like your application if more difficult, you should still shop around for the best deal.

The longer you can wait to apply for your mortgage, the better chance you have of being accepted. And you don’t have to wait until the end of the tax year to apply. For example, if you’ve been trading for 21 months, you’ll have a full year of income plus 10 months of your second year. Lenders will be able to use your past trading history to project your income for the remaining few months of the year.

If you are newly self-employed and thinking about buying a home, the best thing you can do is make sure you keep accurate accounts and fix your taxes correctly. If you can afford to hire one, an accountant can help you to keep accurate records of your income and offer advice on how to make yourself look like a more attractive borrower. However, you don’t need to employ an expert to be able to get a mortgage while self-employed. You can increase your chances of being accepted if you are applying with a partner who is employed full-time.

Speak to an Advisor to see how they can help.