Self-Employed Mortgage
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Listen below as Chris Needham talks all about self employed mortgage.
In less than 10 minutes, you’ll know a lot more about getting your mortgage sorted.
Chris Needham gives us the lowdown on mortgages for the self-employed.
Chris Needham gives us the lowdown on mortgages for the self-employed.
Is it harder to get a mortgage if you’re self-employed?
It can be. Every lender has very different criteria in the way that they assess the income of a self-employed applicant. So it’s important for us to understand your personal circumstances so that we can recommend the correct lender and the most suitable scheme.
Lenders view self-employed applicants as being more risky to them than someone employed on a permanent contract. This was certainly the case through 2020 and 2021 during Covid, where many self-employed applicants saw a drop in their income. Getting a self-employed mortgage is always slightly different than for someone with an employed contract.
What if I only have one year’s accounts, can I still get a mortgage?
Yes, it is possible and a number of lenders will accept an application if you’ve just got one year’s accounts. Most do require you to have been trading for three years, and they would want evidence of the income you’ve made over the last two years.
Again all lenders vary. Some would look at the average of the last two years, some would take the average of the last three years. Some would just take your latest year. Generally, though, a few lenders will take one year’s trading as long as you have one set of accounts.
Are self cert mortgages still available?
No, they’re not. They’re long gone – they probably stopped when I still had a full head of hair! They’re no longer available.
Can you get a joint mortgage if one person is self-employed?
Yes, that’s certainly possible. If one person is employed on a permanent contract and one is self-employed, the lenders would look at that as less risky than if both were self-employed.
Once we know the status of the self-employed applicant – that is, whether they’re a sole trader, part of a partnership or a limited company director, we can then check criteria from over 69 lenders across the market. We make sure that the lender that we’re looking to work with has criteria that will suit both applicants. But yes, it’s very common to get a mortgage with one person employed and one self-employed.
Is Buy to Let available for the self-employed?
When a lender is assessing an applicant for a residential mortgage, to buy a property for someone to live in, the lender is assessing whether the applicant can afford the repayments based on their income.
When someone’s looking at a Buy to Let property, an investment property to rent out, the lender is more interested in what the rental potential of that property is. They want to compare the monthly rental income to the mortgage payments.
So income has less impact when you’re doing a Buy to let Mortgage. It’s certainly possible to get a Buy to Let property if you are self-employed. It doesn’t matter whether you’re a sole trade or a limited company director or in a partnership.
The Financial Conduct Authority does not regulate some forms of Buy to Let Mortgage.
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What’s the difference between someone who is self-employed and a limited company director?
With a sole trader, lenders use the net profit declared as your income. They would use that figure to work out how much you could afford to borrow.
Meanwhile a limited company director is usually paid through a combination of a salary and dividends. Lenders would combine that income to work out how much you could borrow.
Instead of using salary and dividends, some lenders look at the retained net profit from your business so, with limited company directors there are a number of ways that we can work to maximise the amount you can borrow.
What documents do I need when applying for a self-employed mortgage?
It doesn’t matter really whether you’re a limited company director or a sole trader – lenders will always ask for your SA302. That document is your tax calculation showing your earnings and how much profit you’ve made. This and your tax year overview will either be generated by an accountant or can be downloaded from the HMRC website once you’ve submitted your tax return.
We always like to see the last two or three years’ tax calculations and tax year overviews to understand the makeup of your income over that period. Then we can work out which lenders would work with you and how much you could borrow.
How can a broker help with self employed mortgages?
We’ll walk you through every step. The key thing is to understand how long you have been trading, and how your business is set up – whether you’re a sole trader or limited company.
Then we will look at your income from your tax calculations to decide which lender would be most appropriate. That way we know they are going to accept your application.
Your home may be repossessed if you do not keep up repayments on your mortgage.
