Self-Employed Mortgages

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Securing a mortgage as a self-employed individual can be a daunting task, but it’s far from impossible. With the gig economy on the rise and an increasing number of people choosing self-employment, lenders have recognised the need for tailored mortgage solutions.

One of the primary challenges self-employed people face when applying for a mortgage is providing proof of stable income. Traditional lenders often prefer applicants with a regular income and may be sceptical about the reliability of self-employment income. Lenders are likely to require extensive documentation to verify your income, such as tax returns, business accounts, and bank statements.

Are self-employed mortgages really hard to get?

If you are taking the step toward becoming self-employed, you may have heard that it’s hard to get a mortgage. However, if you’re organised, it’s not as hard as you think it may be.

When you are self-employed, your earnings can fluctuate, and this is difficult to track. Getting the paperwork together is also a lengthy, time-consuming experience.

You have to prove to the lender that you can earn enough money to sustain the mortgage for years to come. The lender you choose may go through your documents with a fine-tooth comb to ensure a consistent ability to repay the mortgage on time.

Speaking to the right mortgage broker will help you better understand exactly what you need for your mortgage to be successful.

Proving your income when self-employed

The longer you have been self-employed for, the easier it is to secure a mortgage. This is because you have more income history for lenders to work off.

Most lenders will need to see at least two years’ worth of earnings. This is to determine that your business, and your income from it, is sustainable. Using a qualified accountant is advisable.

That said, it is sometimes possible to get a mortgage if you have only been self-employed for one year. The number of lenders offering these deals is limited. The more evidence you have of a stable income, the better off you will be in the eyes of a mortgage lender.

Before applying for a self-employed mortgage, ensure that your financial records are in order. This includes up-to-date business accounts, tax returns, and bank statements. The more organised and transparent your financial records are, the smoother your application process will be.  

  • Sole trader – lenders will look at your tax calculations and corresponding tax year overviews. If your income is increasing year on year, they will typically take an average of the last two years’ figures. If your income has dropped in the most recent year, they will use that figure in isolation.
  • Limited company director – some lenders will look at your salary and dividends, as declared on your tax documents, whereas others can look at salary and your share of profits in the company accounts. They will usually see you as self-employed if you are a director and own over 20-25% of the business.
  • Contractor – your annual income is usually based on your day rate and a 46-week working year. You may have to have a year’s history of contract work and several months left on your current contract, or evidence of future contracts.

Minimising your income for tax purposes will affect how much you can borrow on a mortgage. Not declaring all of your income can have serious implications, such as prosecution for fraud and tax avoidance.

Documents needed for self-employed mortgages

In addition to the usual documents required, you will have to provide income proof in very specific ways.

Lenders will typically require tax calculations and tax year overviews for the past two years. Some may also ask for your tax returns.

If you are a company director, you will need to send in company accounts. 

Contractors will have to provide copies of contracts and invoices.

In all cases, you should be prepared to hand over at least three months’ worth of business bank statements. More may be required in order to verify income.

It is also important to note that a lot of lenders can only accept income figures dated within the last 18 months. If your latest set of figures is over 18 months old, you will need to get up-to-date ones before applying for a mortgage. 

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