There’s a big misconception that getting a mortgage when you’re self employed is difficult, if not impossible. Experienced consultant, Erin Gallacher, explains why this isn’t the case, what you need to make an application and what to expect...
Self Employed Mortgages – How Have They Changed?
Before the 2007 financial crash, those who were self employed could apply for a ‘self-certification’ mortgage. The applicant could say to the lender, “I earn X amount” and not have to prove it. Post-crash, a lot of regulation came in to protect both the lender and the borrower, so these types of mortgages are no longer allowed.
One of the main changes for self employed applicants is proving your income, so the lender can be confident you can make the repayments. To do this, you need a bit more paperwork than those who are employed.
What You Need: At A Glance
- An accountant
- Two years of accounts*
- Proof of regular work
- Good credit history
- A deposit
*Or tax computations for sole traders who may not have accounts
How Many Years of Accounts Do I Need?
The majority of lenders will require two years self employed income proof to consider your application. However, we have access to some lenders who only require one year, and some will ask for three.
If you have recently become self employed with a company who previously employed you, lenders may be willing to make an exception and waive the requirement of proving two years self employed income as you will have a recent record of being employed. It’s worth talking to a broker about which self employed mortgage lenders are best for your situation.
How Do Lenders Work Out How Much You Can Borrow?
Lenders will typically base their calculations on the average profit you’ve made, as shown in your accounts, or some lenders will use salary and dividends received based on the last two years. While it’s not compulsory to have an accountant (unless you’re a Limited Company), it’s worth keeping in mind that some lenders may require an accountants’ reference or projection of profit, in which instance you will need a qualified accountant.
If you want a quick check of what you can expect to be able to borrow, you can use our Residential Mortgage Calculator as a starting guide.
As a self employed person, lenders will conduct greater due diligence on your personal credit history and are likely to do softer checks on your business (through Companies House for example). Therefore, having a good credit score for both your personal and business accounts will generally make things easier and give you more options. If you’re worried about how your credit score may affect your application, it’s best to speak to a broker who will be able to assess what’s available to you.
The same goes for everyone; the more deposit you have, the more likely you are to be accepted for a mortgage and, generally, the better the rates available to you. Generally, you will need at least a 10% deposit.
Whether you’re buying your first home, moving house or remortgaging, if you have any questions or would like to discuss what mortgages would be available to you, call me, Erin Gallacher, directly on 01625 416392 or email firstname.lastname@example.org and I will be happy to help.
If you’d like a handy 1-minute vlog covering this topic, you can view one from Erin here.
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22nd October 2019