Remortgage When Self-Employed

Is it harder to remortgage if you are self-employed?

It’s not necessarily harder; it’s just that the lender wants different information to confirm what your income is and this may be in various forms of document, depending on your type of self-employment.
You could be a sole trader, you could be in a partnership, you could run a Limited company, or you could be an LLP. Lenders have a different way of verifying what your income is for each type.

So it isn’t harder, it’s just knowing what the lenders require and then providing that information. A lot of people tend to use accountants these days – if I rang my accountant now and asked for the documentation I need as a Limited company director, they can forward those to me within 10 or 15 minutes.

In some cases it’s actually easier being self-employed. People just assume that it’s a lot more difficult – it’s a common perception from everyone, whether they’re directors, sole traders or partners.

Can you give an example of how it works?

If I can establish your situation exactly and ask for the information, it can be very simple. The lender just wants to prove your income, and they all have slightly different variations of how they assess that.

I arranged a mortgage two weeks ago for a Limited company director. He was stuck and didn’t know what to do. It was a simple remortgage, there was no additional borrowing. We worked out what his dividends were and his basic salary and we just needed his tax calculations and tax year overviews for the last two years. His accountant supplied them within 30 minutes.

We took an average of those figures and entered that on the mortgage application and forwarded the lender the tax overviews and tax calculations. Within about two hours the application had been approved, subject to valuation. So it can actually be quite easy.

For the self-employed we need to work from the last two years, ordinarily, whereas if you’re employed, we generally just need a few recent pay slips.

How long do you have to be self-employed to remortgage? Can you remortgage if you’re newly self-employed?

Ordinarily, a lender would require two years’ accounts for income verification, but some lenders don’t need quite as much. Some accept one year, so if you’ve been self-employed for a year, that would be acceptable to some providers.

There are exceptions. Let’s say you’ve been a sole trader for five or six years, but your income started to increase so you set up a Limited company and moved away from being a sole trader. If there was no change in ownership of the business, i.e. you hadn’t added your wife or partner into the business, most lenders will actually consider your self-employed sole trader income.

You may not have two years of accounts as a Limited company, but they may consider your sole trader income. So there are variations – it’s always worth checking because in most cases, there’s something we can do to secure a remortgage or a product switch.

How does the self-employed remortgage process work? Are there any key differences?

The only difference is what you’re supplying as proof of income. If I’m assisting an employed person, we assess income using basic salary and I’m asking for one, two or three months’ pay slips to prove that income.

With a sole trader, I would be looking at their tax overviews and tax calculations for the last two years, which an accountant can normally supply. If it’s a Limited company, I would either look at your accounts or again your tax overview and tax calculations.

It’s slightly different in each instance, but the process is simple. We gather the information around income. I can advise a client exactly which documents they need to provide.

Next in the remortgage process is for a valuer to establish what the property is worth. A lender would still do credit checks and credit scoring, as in every application: employed, self-employed or otherwise. Assuming the individuals pass the checks, the Lender would issue a mortgage offer.

The process is identical for the self-employed and employed. The only difference is how we prove your income, whether it’s with tax year overviews, tax calculations or audited accounts.

Can you remortgage with no proof of income?

I’m not aware of a lender that wouldn’t take any proof of income. However, I’ve had a client recently who had been employed for many years and had the opportunity to go self-employed. They changed at the beginning of 2024, so we’ve no accounts for them [podcast recorded in September 2024].

Their current deal is ending at the end of October, so we’ve gone back to their existing lender and done what’s called a product transfer. In fact, it was on a par with a remortgage. The rate that we’ve secured is still very, very good.

With a product transfer, we don’t need to provide income verification. It’s not quite a remortgage, but it’s on similar lines. If your current mortgage deal is coming to an end, a product transfer is another option, depending on your circumstances and the factors involved.

My client was very worried that he’d gone self-employed without considering his fixed rate mortgage ending later on in the year. He’d been on the internet and seen that you need two or three years’ accounts and rang me in a panic.

He’d got quite worked up that he was going to have to come off a low fixed rate onto the standard variable rate, which would have almost doubled his mortgage payment, but we were able to avoid that completely. It really wasn’t very difficult. It will complete on 1 November.

Can I remortgage if I have bad credit?

Yes, although it depends on the bad credit. I had a remortgage client yesterday afternoon where the lender we initially approached declined it.

We obtained the client’s credit record, and he’d missed a payment on a credit card back in October 2023 – less than a year ago. I wasn’t aware of that beforehand. That lender wouldn’t do the mortgage, just based on their criteria.

We quickly found another lender who would accept one missed payment. So bad credit could just mean one payment – but in fact other lenders will consider incredibly bad credit, where you’ve got county court judgments or a lot of missed payments.

Generally I’m not an adverse credit expert – the majority of my clients tend to be a little bit more vanilla. In that case yesterday afternoon, we met at two o’clock and the client asked me to go ahead. I completed the application and the Lender declined. The client sent me his credit file within an hour, we completed an application with an alternative lender and we’d got it agreed by five o’clock.

Can a self-employed person be declined a remortgage?

Yes – anybody can be declined a mortgage based on credit score or income verification.
If the income isn’t sufficient or there is bad credit, you can fail. That’s the case whether you’re employed, self-employed, retired or otherwise. It’s just down to proof of income and your credit score.