Mortgages for Self Employed
Expert advice on getting a mortgage as a self employed person, save time and money with independent advice on self employed mortgages.
What are the key factors in getting a mortgage?
These are some of the issues self employed borrowers face when getting a mortgage, we look at them in more detail in the text section at the bottom of this page.
Lenders will look at businesses differently depending on whether they are sole traders, partnerships or limited companies.
Calculating your income
Self employed income can be a complicated thing, it's important we get an accurate figure that we can put in front of a lender for assessment, including explanations for fluctuating income.
Years in business
Usually your eligibility will also depend on how long you've been in business.
Proving and Documenting income
Lenders require different forms of evidence depending on your situation, having the right documents is crucial to getting your mortgage completed in a timely manner.
Frequently Asked Questions
I'm a relatively new business and only have one years accounts, can I still get a mortgage?
The simple answer, possibly. One years accounts is the bare minimum that a select few lenders will look at, providing you meet all of their criteria, we'll be able to get your deal with them.
Do I need to have an accountant to prove my income?
Only if you're business is in a format where by law you are required to have an accountant, if you're a sole trader or partnership you'll need to order your SA302s from HMRC.
I have recently changed my business from a sole trader/partnership to a limited company, can I get a mortgage?
There are some banks and building societies we have access to that will lend to you even if you haven't yet completed your first year under the new legal structure.
Will my mortgage cost more because I'm self employed?
Not necessarily, in theory as a self employed borrower you have access to the same products that employed people do, it's just a little trickier when it comes to providng paperwork and meeting criteria.
Self employed mortgages explained
Introduction to self employed mortgages today
Firstly, to clarify, there is no such thing as a self employed mortgage, mortgages are in theory available to everyone regardless of their employment, however certain aspects of a self employed borrowers circumstances can make them ineligible to a lender, and it can be a little more tricky for them given that the criteria can be more in-depth and the need for documentation greater. Another important point to make is that self cert or self certification mortgages are no longer available in the UK, these were products that allowed consumers to state their income without any form of proof and whilst it was a useful tool for a lot of self employed people, the system became widely abused and ended with people taking out mortgages that were too big for them to be able to afford.
It seems that there is a lot of talk in the media about how it is practically impossible to get a mortgage if you're self employed, in reality this couldn't be further from the truth, there are a wide variety of lenders that will accept applications from self employed borrowers, each of them taking a unique view on the deal meaning that with the help of a knowledgeable adviser there should be someone willing to lend to you providing the mortgage is affordable and you can provide the relevant documentation.
How does your business type affect your mortgage?
The structure of your business will change how a lender looks at your application in a number of ways including the documentation that they require from you as well as the way in which they assess whether or not the mortgage you are applying for is affordable for you.
A sole trader is a relatively simple and popular business structure in the UK, you essentially own the entirety of the business and are therefore entitled to 100% of the profits. A lender will consider your income to be just that, net profit usually averaged over three years where available and some lenders will work off of the latest years figures alone.
Partnerships are treated similarly to Sole Traders in that lenders are interested in how much profit is being made by the business, the difference with a partnership is of course in how much of those profits you are entitled to, so if you are an equal partner in a two partner business owning 50%, the lender will assess your income based of 50% of the net profit made over the last three years as a maximum and again one year as a minimum. You will also need to show the level of your ownership on the documents that you provide as evidence of your income.
Director of a limited company
If you are a director of a limited company, it is likely that you are remunerated through a combination of salary credits and dividends, this is what the lender will look at when assessing your mortgage affordability and ultimately deciding how much you can borrow, in some cases it may be that your company has been building up funds without drawing them down in order to accumulate retained profit, some lenders will evaluate this when making their decision whereas others will discount it completely and look only at your personal salary and dividends, there can be a number of varying arrangements with limited companies and there are a variety of lenders on the market with different sets of criteria to cater for you, a whole of market broker like us can assess every lender out there and identify the best mortgage for a self employed person.
Self employed mortgage requirements
As a self employed person, the documents that you need to provide to your prospective mortgage lender are different to those that an employed person would be expected to provide, the major difference is in proving your income, the documents you provide for this will be determined by the type of business that you own, if you are a sole trader without an accountant you will need to order a document called an SA302 from HMRC that will show your income for your financial year and an accompanying tax year overview, these requirements are also the same for partnerships, if you do have an accountant just contact them and ask them to provide you with your SA302s for up to 3 years in the past or as many as you have available below that. For directors of limited companies you will need to provide a little more evidence, as well as your SA302s you will also need your accounts and an accountants certificate provided by a chartered accountant. For additional documentation that you will need to get your mortgage, visit our mortgage document checklist
Calculating your income
Self employed income isn't something that is fixed and can vary sometimes significantly from year to year or even on a monthly basis, for this reason lenders will usually take an average over the last three years, some will also work solely on the figures from the last financial year.
Lenders will also sometimes ask for explanations regarding significant fluctuations in income, for example if your expenses are significantly higher in one particular year and your net profit is reduced as a result, they will ask for your explanation and take that in to consideration. Something lenders do not want to see is the level of net profit steadily and consistently declining year on year, in an ideal situation it would remain relatively constant or increasing over time.
It is also important to note that when assessing your income, banks and mortgage lenders look solely at the income that you are declaring and therefore paying tax on, it isn't uncommon to see clients and their accountants being eager to legally reduce the amount of tax they pay through some means, however this will work against you when applying for a mortgage because at this point we want to show the lender the maximum amount of income possible. If you want to get an idea of how much you could be able to borrow, visit our online mortgage calculator.
How to get a mortgage when you're self employed
Given the level of complexity and the variety of lenders and their criteria that are currently on the market for self employed mortgage borrowers, an experienced and knowledgeable adviser is invaluable and a great place to start when looking for your mortgage. As a whole of market adviser, we are able to search a huge number of mortgage rates and lenders to find you the very best deal, we'll assess your situation in great detail to determine how to execute your transaction in the most efficient and timely manner possible. Get in touch with us today and find out how our impartial service can help you.