From setting your own hours, to being your own boss; for an increasing number of people across the UK, self-employment is becoming a way of life. However, for all the many benefits this type of employment can bring, there are potential downsides to consider. One such consideration is how to get a mortgage if you are self-employed, and therefore unable to provide prospective lenders with standard income verification in the form of employer’s payslips.
Contact us for free advice
Changes in the mortgage market and in mortgage regulation in recent years have resulted in lenders becoming more stringent in their approach to mortgage underwriting, and taking a much more cautious and risk-averse attitude when assessing affordability.
For self-employed people – including sole traders, partnerships and limited company directors – the process of how some lenders assess mortgage applications can be extremely frustrating; many lenders, especially the more mainstream banks and building societies, simply do not have sufficient understanding or experience of self-employed finances.
Fortunately, at Just Mortgage Brokers we specialise in acting as mortgage brokers for self-employed applicants, and have the experience and knowledge of how different lenders – from the big high-street banks and building societies to smaller, more specialist lending companies – make these assessments. As a self-employed mortgage broker, our expertise can help you to find the best self-employed mortgage on the market to meet your specific needs and circumstances.
What are self-employed mortgages?
You may be surprised to learn that technically there is no such thing as a “self-employed mortgage”. In theory this means that everyone applying for a mortgage – whether employed or self-employed – should have access to exactly the same rates and mortgage options.
So what is different? Ultimately, it is the way lenders view income and assess your ability to afford the mortgage. Typically, for those employed on a PAYE basis a lender will be happy to look at payslips that confirm the annual salary of the applicant; however, for mortgage applicants who are self-employed, or a limited company director, the requirements can vary enormously between lenders.
Can I get a Self Employed mortgage?
What do I need to get a self-employed mortgage?
When lenders assess income for those that are self-employed, it is generally based on an evaluation of historical earnings, rather than what you are earning today. Typically, the lender will work on an average of the last two or three years’ earnings as verified by either your full accounts, or via your SA302 Self Assessment tax calculation documents (see below for more information about SA302s and how to get them).
With the many various types of self-employment, one size certainly does not fit all when it comes to getting a mortgage; some lenders are better placed than others in lending to self-employed applicants, depending on your individual arrangements. We have experience of helping self-employed people in a variety of circumstances; for example, if you are applying for a self-employed mortgage, 1 year’s account is all you have available, we will help you to find a lender whose underwriting criteria can accommodate this. Other examples of where we can help as a mortgage broker for self-employed applicants include:
- Calculations based on retained profit
- Working with accountants certificates
- Assessments made using latest years figures only
- No accounts required for contractors
- Knowledge of umbrella companies and freelancers
What is an SA302?
An SA302 form is your Self Assessment tax calculation, provided by HM Revenue & Customs. While many mortgage lenders will ask for full accounts (usually between one and three years’ worth) to verify the income of self-employed mortgage applicants, it is increasingly common for lenders to accept SA302 forms instead.
Over 50 lenders accept SA302s printed at home or by an accountant, accompanied by the corresponding tax year overview, while others may ask for originals provided by HMRC. For mortgage lenders, the SA302 provides documentary evidence of your declared income for that tax year, in compliance with affordability rules set down by the Financial Conduct Authority (FCA).
An SA302 summarises the information you submitted to HMRC in your annual tax return, and shows the calculation of your income tax and National Insurance contributions due for the tax year. It breaks down your declared income from all sources including salary, income from self-employment or partnerships, limited company dividends and interest. The calculation also breaks down the total income tax due and the applicable tax rates.
Self Employed Mortgage Rates
Helping you find the best rates.
HMRC can provide up to four years’ SA302s and tax year overviews. There are various ways you can obtain these, depending on how you submit your tax returns. If you submit your return using the HMRC online Self Assessment service, you can sign into the website and print the necessary documents directly. If you – or your accountant – use commercial software to submit your annual tax returns, the SA302 can be printed via the software.
If you do not have access to a printer, or if you are applying to a lender who will only accept an original SA302, then you need to request it from HMRC. This also applies if you submit your tax returns by post, rather than online or via software.
To request an original SA302, you can call the Self Assessment helpline on 0300 200 3310, quoting your National Insurance number and Unique Taxpayer Reference (UTR). You can also write to: Self Assessment, HM Revenue and Customs, BX9 1AS. Once HMRC has received your request, you should allow up to two weeks for the requested documentation to arrive.
How much can I borrow for a self-employed mortgage?
Lenders can vary considerably in how they calculate an income figure for self-employed mortgage applicants. Some may base the figure on your most recent year’s declared income, others on an average of the past two or three years’ figures. Lenders may apply different criteria to how they consider direct income, salary and dividends drawn from a limited company structure, and retained profits.
In short, there is no single hard-and-fast rule as to how a lender will calculate your income figure. However, once that figure has been established, the amount you can borrow should be subject to the same lending criteria as anyone else applying for a mortgage with the same lender.
How Just Mortgage Brokers can help
With an intricate knowledge of the mortgage market, particularly of niche areas like self-employed mortgages, our mortgage brokers can help you source and secure the best self-employed mortgage for your circumstances, and assist in maximising your borrowing potential.
We know which self-employed-friendly mortgage providers to approach and those that will work out best for you based on your individual circumstances. We have helped many self-employed customers find a mortgage that suits both their budget and their lifestyle.
Ready to secure your self-employed mortgage? Contact our team today.