Getting a self employed mortgage might feel overwhelming, but it’s absolutely achievable. Self-employed people often face stricter checks from lenders, but with preparation and knowledge, you can secure a mortgage that works for you. This guide explains every step in detail, so you’re ready to take the next step towards homeownership.
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What Is a Self Employed Mortgage?
A self employed mortgage is just like any other mortgage. The difference lies in the documentation required. Lenders need extra proof of your income because they view self-employed earnings as less predictable than a traditional salary. Their goal is to ensure you can make repayments consistently.
Before 2014, self-employed borrowers could apply for self-certification mortgages, where income was declared but not verified. These were banned because they led to risky lending. Now, lenders focus on detailed financial records to evaluate your ability to repay the loan.
Do Self-Employed People Pay Higher Mortgage Rates?
No, being self-employed doesn’t mean higher mortgage rates. Interest rates depend on your overall financial profile. Factors include your credit score, deposit size, and the lender’s criteria. If your finances are in good shape, you can access the same competitive rates as employed borrowers.
A larger deposit can lower your loan-to-value (LTV) ratio, making you less risky to lenders. Similarly, a strong credit history increases your chances of getting favourable terms. It’s all about showing lenders that you’re a reliable borrower.
Documents You Need for a Self Employed Mortgage
To apply for a self employed mortgage, you’ll need to present several documents. These help lenders assess your income and financial stability.
General Documents
Lenders require these basic documents:
- A valid passport or driving licence for identification.
- Utility bills or council tax statements as proof of address.
- Bank statements for the last three to six months.
- Proof of deposit, showing savings or any gifted contributions.
Self-Employed-Specific Documents
For self-employed applicants, additional evidence is crucial:
- Certified accounts for the last two to three years, prepared by a qualified accountant.
- SA302 forms or tax year overviews from HMRC.
- Evidence of ongoing contracts if you work as a contractor.
- Proof of retained profits and dividends for company directors.
Providing clear, accurate, and detailed records makes it easier for lenders to process your application.
How Do Lenders Assess Self-Employed Income?
Lenders calculate income based on your business structure:
Sole Traders
They assess your average net profit over the last two to three years. Consistency in profits strengthens your application.
Limited Company Directors
They consider your salary and dividends or your share of the company’s net profits.
Contractors
Your income is calculated using your day rate or an average of yearly earnings. Lenders may use your lowest earning year to ensure affordability.
Steps to Secure a Self Employed Mortgage
Organise Your Financial Documents
Gather all required documents well in advance. Ensure your accounts and tax forms are accurate and up to date. A qualified accountant can help you prepare these.
Save a Larger Deposit
The bigger your deposit, the better your chances. A larger deposit reduces your loan-to-value ratio, giving you access to better rates and more options.
Improve Your Credit Score
A strong credit score is essential. Register on the electoral roll, pay bills on time, and reduce any outstanding debts. Regularly check your credit report for errors and correct them immediately.
Use a Self-Employed Mortgage Calculator
A self employed mortgage calculator helps you estimate how much you can borrow and plan your repayments. This tool is invaluable for ensuring your application is realistic and well-prepared.
Why Use a Self Employed Mortgage Calculator?
A mortgage calculator for self employed borrowers simplifies the planning process. It helps you:
- Estimate how much you can borrow based on your income.
- Plan monthly repayments.
- Check affordability before you apply.
Using a calculator ensures you set realistic expectations and prepare thoroughly.
How a Specialist Mortgage Broker Can Help
A self employed mortgage broker can make a big difference in your application process. Brokers:
- Find lenders who are open to self-employed applicants.
- Offer access to exclusive deals not available to the public.
- Simplify the process and increase your chances of approval.
Conclusion
Getting a self employed mortgage might require extra effort, but it’s within your reach. By organising your documents, saving for a larger deposit, and using tools like a self employed mortgage calculator, you can strengthen your application. Consider working with a broker to navigate the process and find the best deals. Start preparing today, and take a step closer to owning your dream home.
How Long Must I Be Self-Employed to Get a Mortgage?
Most lenders require two to three years of accounts. If you have less, you may still qualify if you can demonstrate stable income and financial security.
Can I Apply for a Joint Mortgage?
Yes, you can apply for a joint mortgage with a partner. Combining incomes can improve your borrowing power, but ensure both incomes can support repayments if one decreases.
What Should I Do If I’m Rejected?
If your application is rejected, don’t give up. Address the reasons for rejection, strengthen your financial profile, and consult a mortgage broker. Brokers can match you with lenders who are more accommodating.