Many self-employed people have concerns about whether they will be able to get a mortgage. It’s certainly true that stricter lending policies since the financial crisis of 2007–2008 have made it tougher for many people to get the mortgage they need, and this is particularly true for the self-employed, freelancers and contractors who don’t have the luxury of being able to prove their income by just providing three months’ payslips and bank statements.
However, it’s by no means impossible for self-employed workers to get a mortgage, and in fact more and more lenders are realising that their lending policies need to be more flexible if they are to deal with applications from the ever-greater proportion of people who are choosing to be self-employed. Here we’ll look at a few of the things you can do to make it easier for you to get a self-employed mortgage.
What you need to get a mortgage – the basics
There are a few basics that lenders will be looking for from self-employed people applying for a mortgage:
- Full business accounts – most mainstream lenders look for three years’ accounts, but some with more experience of self-employed mortgages may ask for as little as one year’s worth of accounts.
- An accountant – almost universally, lenders will require your business accounts to be certified by a chartered/certified accountant.
- SA302 forms – some lenders will ask for your SA302 year-end tax calculations from HMRC, either as well as or in lieu of full business accounts. Again, depending on the lender this can vary from one to three years’ worth.
- Consistency – one of the main things that a lender will want to see is stability of, or increasing, income. If your business accounts show evidence of regular or prolonged gaps in your income stream, this may affect their lending decision unless you can provide a good explanation (such as a period of ill-health or a deliberate work break for paternity/maternity reasons). Be fully prepared to answer questions about any past dips or fluctuations in your income.
- A good credit history – in common with any other mortgage applicant, adverse credit records could affect your ability to get a mortgage.
Additional factors for limited company applicants
If you run your self-employed business as a limited company, there are other things that you will need to take into account in proving to a lender that you can afford a mortgage. A few pointers are listed below, but above all be aware that different lenders vary in whether they will consider factors such as dividends and retained profits when calculating income and affordability.
- Discuss your mortgage requirements with your accountant – many self-employed people with limited companies deliberately structure their business cash flow to minimise income drawn from the company, in order to minimise income tax liabilities. However, with some lenders this may actually affect how they’ll view your ability to afford the mortgage. Talk to your accountant and consider whether restructuring your payments would be worthwhile.
- Use a mortgage broker – this can be advantageous for both sole trader and limited company mortgage applicants, but in the latter case a good broker can be invaluable. A broker experienced in self-employed mortgages will know what lenders offer the best deals and what their documentation and underwriting requirements are, as well as which companies do or don’t take dividends and retained profits into account when calculating affordability.
- Consider private banks – if you are looking to borrow a larger amount (typically over £500,000) then consider using a private bank for your mortgage. Private banks offer good mortgage terms for high-net-worth customers, and are amongst the most flexible lenders in terms of working out affordability and how much you can borrow – including taking into account multiple income streams and the value of personal or business assets.