10 most frequently asked self-employed mortgage questions
If you’re self-employed and considering a mortgage, it’s a good idea to speak to a mortgage advisor who specialises in helping self-employed individuals. They can guide you through the process and help you find lenders who are more likely to approve your application.
- How much can I borrow as a self-employed?
- Lenders assess affordability based on your average earnings over the past 2-3 years, not just your current income.
- They’ll consider your business’s overall financial health, not just your personal income.
- A strong credit score and a healthy deposit can increase your borrowing potential.
2. What documents do I need?
Expect to provide tax returns (SA302s), accounts, bank statements, and potentially business plans or contracts.
The more comprehensive your documentation, the smoother the process.
3. How many years of accounts do I need?
Most lenders prefer to see at least 2 years of accounts from self-employed applicants. This allows them to assess your income consistency and business stability over a reasonable period.
However, it’s not a hard and fast rule, and some lenders may consider applications with only 1 year of accounts, especially if you have:
- A strong credit score: Demonstrating responsible financial management.
- A large deposit: Reducing the lender’s risk.
- A history of stable income: Even if it wasn’t self-employed, showing a track record of earning.
- A solid business plan: Convincing the lender of your business’s future prospects.
Why do lenders prefer 2+ years?
Income consistency: Self-employment income can fluctuate. 2 years of accounts provide a better picture of your average earnings.
Business stability: It shows your business has been operating for a while and is more likely to be sustainable.
Reduced risk: Lenders want to be confident you can repay the mortgage. More financial history reduces their perceived risk.
What if I have less than 2 years?
Don’t give up! Some lenders are more flexible.
Focus on your strengths: Highlight your credit score, deposit, and any other evidence of financial stability.
Consider a specialist lender: They may be more willing to consider your circumstances.
Talk to a mortgage advisor: They can help you find suitable lenders and present your case effectively.
4. Will I need a larger deposit?
Not necessarily. While some lenders may ask for a higher deposit, many offer mortgages to self-employed applicants with standard deposit requirements (typically 5-10%).
5. Do I need a higher credit score?
A good credit score is always beneficial, but it’s not always a deal-breaker for self-employed applicants.
Lenders understand that self-employment can sometimes lead to fluctuating income, which may occasionally impact credit scores.
6. What if my income fluctuates?
- Fluctuating income is common for self-employed individuals.
- Lenders will look at the overall trend of your income over the past few years to assess your affordability.
- Be prepared to explain any significant fluctuations and provide context.
7. Can I get a mortgage if I’m a contractor?
It’s definitely possible to get a mortgage as a contractor in the UK. However, like any self-employed individual, you’ll need to meet certain criteria and provide sufficient evidence of your income.
Here’s what you need to know about getting a mortgage as a contractor:
Challenges and Considerations:
Proof of income: You’ll need to provide evidence of your earnings, such as payslips, invoices, and bank statements. Some lenders may also ask for your contract details.
Income fluctuations: Contractors often experience periods of work and then gaps between contracts. Lenders need to be confident in your consistent earning potential.
Contract length: Lenders may prefer to see longer-term contracts or a history of contract renewals, demonstrating stability.
How to improve your chances:
Specialist mortgage broker: A broker with experience in contractor mortgages can help you find lenders who are more likely to consider your circumstances.
Strong credit score: A good credit history is essential for any mortgage applicant, including contractors.
Sufficient deposit: A larger deposit can make your application more attractive to lenders.
Consistent work history: Demonstrating a history of successful contracts and renewals can help convince lenders of your reliability.
Detailed financial records: Keep accurate records of your income and expenses to present a clear picture of your finances.
Important Note:
While getting a mortgage as a contractor might require a bit more effort, it’s certainly achievable. Focusing on your financial strengths, providing thorough documentation, and seeking expert advice can increase your chances of securing a mortgage.
8. What if I’ve recently become self-employed?
- Getting a mortgage immediately after becoming self-employed can be challenging.
- Lenders generally prefer to see at least 1-2 years of consistent self-employment history.
9. Can I use my business profits to pay the mortgage?
- Lenders will primarily focus on your personal income when assessing affordability.
- However, they may consider retained business profits as a sign of financial stability.
10. Should I use a mortgage broker?
A mortgage broker can be particularly helpful for self-employed applicants.
They have expertise in navigating the complexities of self-employed mortgages and can find lenders who are more likely to approve your application.
Remember:
The information provided here is general in nature. It’s crucial to consult with a qualified mortgage advisor to discuss your individual circumstances and get personalised advice.
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