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Is it harder to get a mortgage if you are Self-Employed?

It’s a bit of a misconception that it’s very difficult to get a mortgage if you’re Self-Employed. Typically lenders will want to see a history of at least two years to show a stable income, but beyond the additional proof of income and longer working history requirement, there is very little difference.

Some lenders will accept Self-Employed individuals with just twelve months of working history available, depending on the level of your income, so, although there are some additional hurdles for the Self-Employed, it’s not as difficult as it’s often imagined.

What is the difference in the documents required by Self-Employed applicants, compared to employed applicants?

If you’re employed, three months worth of payslips and three months bank statements is usually enough to support a mortgage application. For Self-Employed applicants full and certified accounts and SA302 tax calculation forms are required for the past two or three years, as well as a tax overview from HMRC. This is to show what tax was due and how much you earnt.

What if I only have one year’s accounts, can I still get a mortgage?

There are lenders that will allow you to apply, depending on what industry you’re in. If you could establish that you’ve worked in the industry for a while, but have recently moved into self employment, it can improve the perception that you will have a continuous, stable income.

Some Self-Employed operate as contractors, and in this case, a lot of lenders allow you to use your contract as the proof that you’re going to have sustainable income. If you’ve got a year left on a contract, then there is no difference to being in an employed contract in an employed role, really.

Over the last few years, steps have been taken towards making it easier, because Self-Employed workers are far more common now than they were five to ten years ago.

Are self certified mortgages still available?

No they aren’t available now.  Unfortunately this was taken advantage of as a loophole for people to purchase way more expensive properties than they could realistically afford, which caused a lot of problems for the lenders.

What is the difference between someone who is Self-Employed and a Limited Company Director? 

Self-Employed can generally choose where and when they work and who they work for. If you own a limited company, you are still Self-Employed, however, you focus on your own business and may have other employees. Lenders will see you as a business owner and the income they consider will be different than a standard Self-Employed person who does not own a business, because for example, they will not have overall business profits, only their own income.

People who own their own businesses may not look as though they earn as much as other Self-Employed people, depending on how they choose to pay themselves. Many of them will want to retain as much profit as possible in the business to assist in its growth, so it’s important to find a lender who is willing to consider that alongside your personal income.

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Can you get a joint mortgage if one applicant is Self-Employed?

You can apply for a mortgage with one Self-Employed person and one fully employed person or even two Self-Employed people. Either of these options are fine, so long as the applicants are both able to prove a stable income and significant enough history in their current job.

How do you apply and how does it work if one is Self-Employed?

From the perspective of the Mortgage Broker and the client, there’s not really any difference in the mortgage application process. As the broker, when we put an application in, the lender might only request a few documents, whereas sometimes, they might request a lot more. 

At the start of the process we will obtain as much information from the client as possible, which will help them to prepare the right documents needed for their employment type and to meet the lenders’ criteria. This will allow the process to run smoothly.

Are Buy to Let mortgages available for the Self-Employed?

Yes, this is certainly possible and as we work with various lenders all across the country, there’s usually a lender that will fit any circumstances. Being Self-Employed doesn’t really impact Buy to Let mortgages. Some lenders will ask if you earn over twenty five thousand pounds a year and some don’t  have a maximum or minimum income requirement.

If lenders feel that your situation is sustainable, they don’t necessarily need you to have an income for a Buy to Let, because as long as the mortgage is covered by the rent you will earn from the property, your own income is not too important to the lender.

The Financial Conduct Authority does not regulate some Buy to Let Mortgages.

How do you prove your income if you’re Self-Employed? 

Typically the lender will ask for your last two years, SA302 documents and your tax overview. You will be able to speak to your accountant or you might have a government gateway login to download those specific documents, if you do your own accounts.

Depending on the type of role you’re in, you might have a contract. Some lenders will consider your contracted day rate daily to calculate your annual income. How a lender will assess each individual applicant will be a factor in which documents are required, so knowing this in advance can help you prepare the right documentation.

How much can a Self-Employed person borrow? 

There’s no specific cap on how much Self-Employed applicants can borrow. To give you a rough calculation, about four and a half times your average annual income over the past two to three years is a typical amount you can borrow, however, that is general and you may get more or less, depending on your individual circumstances. An Agreement in Principle will give you a bit more of a definitive answer, once you’re ready to start making offers on properties.

How does remortgaging work for the Self-Employed?

Again, being Self-Employed will not affect this. At the end of your initial fixed interest period, you can make the decision if you want to stick with the same lender. If you stick with the same lender and you’re not asking for more money or to change anything about the mortgage, they will just let you do a product transfer, which basically allows you to to go on to the lender’s new fixed-rate product.

If you wanted to change anything about the mortgage over, then you would have to go through an affordability assessment again, where you’ll need to provide the same tax documents, although this is no more difficult than your initial application.

How can First Thought Financial help?

To avoid misconceptions about Self-Employed mortgages, it’s always best to speak to mortgage brokers like ourselves, who are experienced in this area. We’re always happy to help, even if it’s just a general enquiry or question. We can point you in the right direction and assist you any way we can. 

As a mortgage is secured against your home or property, it may be repossessed if you do not keep up the mortgage repayments. Think carefully before securing any other debts against your home.

HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.

The Financial Conduct Authority does not regulate commercial buy to let mortgages

The financial conduct authority does not regulate tax advice.

Your home may be repossessed if you do not keep up repayments on a mortgage or other debt secured on it.

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