How to get a mortgage when you’re self-employed (and why the proof is in the planning)

How to get a mortgage when you’re self-employed (and why the proof is in the planning)

There’s no two ways about it: if you’re self-employed and hoping to secure a mortgage, it’s a good idea to get your ducks in a row. 

“When you’re self-employed, lenders want to see how the inner workings of your business runs,” multi-award winning mortgage adviser, Jo Jingree, explains. “They want to make sure you have a solid, steady and reliable income and that you can therefore afford to pay back your mortgage,” she adds. 

 

‘You’ll need to bring a bit more paperwork to the party’

When you’re self-employed, your wage can go up or down each month. As can your yearly income. And, there’s no handy payslip at the end of each month to prove how much you make.

“Which is why, you’ll need to bring a bit more paperwork to the party,” Jo says. 

That said, securing a mortgage when you’re self-employed requires you to pass exactly the same ‘test’ as if you were PAYE. “That test is your ability to repay your mortgage,” Jo explains. “And, as a mortgage adviser, it’s my job to put together a business case to help you pass with flying colours.”

So, if you’re a sole trader, company director, freelancer or contractor who’s hoping to buy your first home or remortgage in the next six months or more — look this way. We’ve compiled a list of tips to help you get your ducks in a row well ahead of your mortgage application. 

 

How to get a mortgage when you’re self-employed 

1. Be prepared to show your proof of earnings

When you’re employed, most lenders will need to see your last three payslips. 

But when you’re self-employed, it’s common for lenders to ask for your past three years’ worth of accounts or SA302s ( the official tax calculation from HM Revenue and Customs that proves how much you’ve earned based on your latest Self Assessment tax return). 

Or if you’re a director of a limited company, some lenders might also ask for certified accounts certificates signed by an accountant or profit and loss reports and balance sheets.

“Which is why it’s a bright idea to get ahead,” Jo says. “Even if you’re not thinking of buying or remortgaging until 2024 or 2025, how your business does now could impact your affordability.”

Lenders will specifically look into: 

  • Your taxable income 
  • How much pension you pay (if any) — as the more you pay, the more ‘outgoings’ you are considered to have. 
  • Any other expenses your business incurs — so if you or your accountant uses legitimate methods to reduce your taxable income, it’s important to note that this might work against you in the mortgage application process. 

Have you just started your business and not got three years’ worth of account history? “Don’t panic — there are some lenders who will consider lending based on one or two years’ accounts,” Jo adds. But this will depend on a case by case basis.

 

2. Get ready to hand over your bank statements

To further prove your affordability, lenders will need to see both your business and personal bank statements. 

They’re looking for things like: 

  • Proof of income
  • Your monthly expenditure

 

3. Putting down a deposit? Do you have proof of your funds?

Buying your first home and putting a deposit down? Then, as is the case if you were employed full-time by a company, the lender will need to see proof of your funds. 

“Evidence from a recent bank statement should do the trick,” Jo says. 

 

4. Have your credit score and report at the ready

This is no different to if you were employed. Your credit score is what lenders use to help them decide how likely it is that they will be repaid on time if they give you a mortgage.

The score is personal to you as it’s built on your credit history. Your credit history will include your total level of debt, your repayment history, your number of open accounts and other factors.

Jo suggests using Check My File, which takes data from the three main credit bureaus, Experian, Equifax and TransUnion. They offer a 30 day free trial and after that you will be charged £14.99 per month but you can cancel at any time.

5. Get on good terms with your accountant

Before filing any tax returns, it’s a good idea to speak to your accountant about your future plans to buy or remortgage. 

“They can help you understand the ins and the outs of your accounts,” Jo says. “And give you guidance on how much your taxable income is, how much your expenses are and generate any projections so we can see what your borrowing capacity could look like.”

 

Got your ducks in a row? 

So, as you can see, it’s never too early to start organising your finances, especially if you’re self employed and looking to get a mortgage. Ready to take the plunge? Here at Mortgage Confidence we offer a 30-minute no obligation consultation to talk through your situation. Jo has worked in the industry for more than 20 years and works with numerous lenders who specialise in self-employed mortgages. Whether you’re six months or a year away, get in touch to find out your options. 

 

There may be a fee for mortgage advice. The precise amount will depend upon your circumstances, but we estimate it will be £399. Your home may be repossessed if you do not keep up repayments on your mortgage.

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