What is a Self-Employed Mortgage?
A self-employed mortgage functions like any other loan for purchasing a home. The key difference is that lenders assess your self-employed income to determine if you can afford the repayments. They may request additional documents, such as tax returns and business accounts, to get a clear picture of your financial situation.
Essential Features of Self-Employed Mortgages
1. Income Assessment
Lenders evaluate your earnings based on:
• Sole Traders: Net profits as shown on your tax return.
• Limited Companies: Salary and dividends, with some lenders also considering retained profits.
2. Documents Needed
Be prepared to provide:
• Tax Returns and SA302 Forms: To show your income over the past two to three years.
• Bank Statements: To demonstrate your income and spending habits.
• Certified Accounts: If you’re a company director, lenders may request professionally prepared accounts.
3. Credit Score
A strong credit score increases your chances of approval. Check your credit report before applying and resolve any issues.
4. Deposit Requirements
Lenders may require larger deposits, typically between 15% and 25%. A larger deposit could also help secure lower interest rates.
How to Secure a Mortgage When Self-Employed
Steps to Secure a Mortgage When Self-Employed
1. Check Your Finances
• Review your credit score.
• Register on the electoral roll.
• Pay off debts to improve affordability.
2. Gather Your Documents
• Sole Traders: Tax returns, SA302 forms, and bank statements.
• Company Directors: Certified accounts, dividend records, and business bank statements.
3. Use a Mortgage Broker
A broker who specialises in self-employed mortgages can connect you with lenders who are familiar with your income type.
4. Get a Decision in Principle
This is an estimate of how much you can borrow, helping you narrow down your property search.
5. Apply for the Mortgage
Submit your documents to the lender. The approval process can take a few weeks.
What Makes Self-Employed Mortgages Different?
Lenders typically require more proof of income from self-employed applicants compared to those who are employed, as self-employed income can fluctuate. Providing clear documentation, such as tax returns and certified accounts, helps demonstrate to lenders that you can afford the loan.
Advice for Securing a Self-Employed Mortgage
• Save a Larger Deposit
A bigger deposit lowers the risk for lenders and may help secure a better interest rate.
• Plan Your Timing
Apply when you have two or three years of strong earnings. Avoid applying after a less profitable financial year.
• Use a Specialist Broker
A broker can connect you with lenders who are experienced in self-employed mortgages.
• Build Your Credit Score
Pay bills on time, register on the electoral roll, and manage your debts to improve your credit score.
Advantages of Self-Employed Mortgages
• Flexible Options: Select from fixed-rate or variable-rate mortgages.
• Tailored to Your Needs: Lenders assess your unique financial situation.
• Better Opportunities for Company Directors: Some lenders consider retained profits when calculating income.
• Access to Property: Self-employed mortgages make homeownership more accessible.
FAQs About Self-Employed Mortgages
Can I get a mortgage with just one year of accounts?
Yes, some lenders accept one year of accounts, but you may need a larger deposit.
What if I have bad credit?
You can still apply. Some lenders specialise in mortgages for those with poor credit, though rates may be higher.
How much can I borrow?
The amount depends on your income, deposit, and financial stability. A mortgage broker can help estimate this.
Do I need a certified accountant?
While it’s not a must, using a certified accountant strengthens your application.
Will my tax return affect my application?
Yes, your tax return shows your income, so it’s essential for lenders to assess affordability.
Why Choose Compare the Mortgage?
At Compare the Mortgage, we make the process of applying for a self-employed mortgage easier. Here’s what we provide:
Expert Support
Personalised advice based on your financial situation.
Access to Specialist Lenders
Partner with lenders who are familiar with self-employed income.
Wide Range of Options
Select from fixed-rate, variable-rate, and other mortgage options.
Transparency
No surprises – we provide guidance throughout every step of the process.
Take the First Step Today
Ready to apply for a self-employed mortgage? Contact Compare the Mortgage today to explore your options and turn homeownership into a reality.