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Self-Employed Mortgages and how to find them
Self-Employed mortgages are only complicated if you haven’t been in business for long – or you have bad credit. Generally, most lenders will accept you, as long as you have documents to prove your income and a good deposit.
What is a Self-Employed mortgage?
Lenders don’t sell special mortgages for the Self-Employed – you’ll apply for the same products as anyone else. The main difference for a Self-Employed mortgage applicant is how you prove that you can afford the repayments.
Lenders will consider you as Self-Employed if you own 25% or more of a business registered in England or another part of the UK. You might be a sole trader, in a partnership or running a limited company.
While you might have heard of self certification mortgages, these were outlawed by the Financial Conduct Authority a few years ago. They were a popular option for the Self-Employed.
How much can I borrow on a Self-Employed mortgage?
The amount you can borrow will depend on your personal circumstances, but as a general rule lenders tend to offer four to five times your annual income. For the Self-Employed it’s often more difficult to work out your yearly earnings, which is why mortgage lenders want to see tax records and company accounts.
What deposit will I need?
The more you can put down as a cash deposit towards a mortgage, the wider your choice of mortgage lenders, and the better the rates they will offer you. The standard deposit is 10 to 20 per cent, but if you raise more, it is easier to convince a mortgage company that you are a safe risk.
Use a mortgage calculator to explore how different sized deposits would affect the monthly repayments on your mortgage. Make sure the payments are manageable, as if you struggle to meet them, your home may be repossessed.
How will your Self-Employed income be assessed?
Employed people applying for mortgages just state their salary and prove it with some recent payslips. But for the Self-Employed, it’s not as simple to prove your income as often it varies from month to month.
This is why lenders will often want to see two sets of yearly accounts. You will also need to supply SA302 forms for self assessment to confirm your annual, taxed income. If you run a limited company, it is helpful to demonstrate your salary, dividends and retained profits. Clear growth year on year will certainly help your application.
If your income varies a lot year by year, or your business hasn’t performed as well as you hoped, it can help to share details of new business contracts or bank statements that show you have savings.
Lenders will also scrutinise your credit rating. If you have a low credit score, you may have fewer lenders to choose from, and they may offer higher mortgage rates.
How do you improve your chances of being accepted by a lender?
If you have been trading for under a year, few lenders will be comfortable to take you on as a customer. It’s not impossible, but it often pays to wait until you have two years’ trading records before buying a home.
You will also need to make sure you have all the documentation you might need. If you don’t already have an accountant it may be worth appointing one to check that everything is in order. They can also certify your accounts, which is often required.
If you are concerned that you cannot borrow your goal amount, a joint mortgage might help. Teaming up with someone in a regular employed role will usually increase your loan amount and help towards mortgage approval.
How can a Mortgage Broker help the Self-Employed?
At the Mortgage Co we have helped many Self-Employed people get a suitable mortgage and buy a home. Our mortgage advisers know the market and will suggest the providers that are most likely to accept you based on your own specific circumstances. We’ll compare different mortgage products, looking at fees, rates and criteria to recommend the most valuable options.
We’ll also help identify the documents you will need for a successful application. Authorised and regulated by the Financial Conduct Authority, we will take away much of the stress – and hard work – of finding a mortgage to suit you. Contact our registered office today to see how we can help you achieve your property goals.