What is a Self-Employed Mortgage?
A self-employed mortgage is the same as any other loan to buy a home. The difference is that lenders look at your self-employed income to check if you can afford the payments. They may ask for extra documents, like tax returns and business accounts, to understand your finances.
Key Features of Self-Employed Mortgages
- Income Assessment
Lenders calculate your earnings based on:
- Sole Traders: Net profits shown in your tax return.
- Limited Companies: Salary and dividends. Some lenders also consider retained profits.
- Documents Needed
Be ready to provide:
- Tax Returns and SA302 Forms: Show your income for the last two to three years.
- Bank Statements: Prove your income and spending habits.
- Certified Accounts: If you’re a company director, lenders may require professionally prepared accounts.
- Credit Score
A good credit score makes it easier to get approval. Check your credit report before applying for a mortgage to fix any issues.
- Deposit Requirements
Lenders often ask for larger deposits, ranging from 15% to 25%. A bigger deposit can also mean lower interest rates.
Steps to Get a Mortgage When Self-Employed
- Check Your Finances
- Review your credit score.
- Register on the electoral roll.
- Pay off debts to improve affordability.
- Gather Your Documents
- Sole Traders: Tax returns, SA302 forms, and bank statements.
- Company Directors: Certified accounts, dividend records, and business bank statements.
- Use a Mortgage Broker
A broker specialising in mortgage financing for self-employed people can find lenders who understand your income style.
- Get a Decision in Principle
This is an estimate of how much you can borrow, helping you focus your home search.
- Apply for the Mortgage
Submit your documents to the lender. The process may take a few weeks.
Why Are Self-Employed Mortgages Different?
Lenders require more proof of income from self-employed applicants than from employed people. This is because self-employed income can vary. Providing clear records, like tax returns and certified accounts, helps show lenders you can afford the loan.
Tips for Securing a Self-Employed Mortgage
- Save a Bigger Deposit
A larger deposit reduces risk for lenders and can lower your interest rate.
- Plan Your Timing
Apply when you have two or three years of strong earnings. Avoid applying after a weaker financial year.
- Use a Specialist Broker
A broker can match you with lenders experienced in self-employed mortgages.
- Build Your Credit Score
Pay bills on time, register to vote, and manage your debts to boost your score.
Benefits of Self-Employed Mortgages
- Flexible Options: Choose from fixed-rate or variable-rate mortgages.
- Tailored to You: Lenders evaluate your specific financial setup.
- Better Opportunities for Company Directors: Some lenders include retained profits when calculating income.
- Access to Property: Self-employed mortgages make homeownership achievable.
FAQs About Self-Employed Mortgages
Can I get a mortgage with just one year of accounts?
Yes, some lenders accept one year of accounts, but you may need a larger deposit.
What if I have bad credit?
You can still apply. Some lenders specialise in mortgages for those with poor credit, though rates may be higher.
How much can I borrow?
The amount depends on your income, deposit, and financial stability. A mortgage broker can help estimate this.
Do I need a certified accountant?
While it’s not a must, using a certified accountant strengthens your application.
Will my tax return affect my application?
Yes, your tax return shows your income, so it’s essential for lenders to assess affordability.
Why Choose The Landlords Broker?
At The Landlords Broker, we simplify the process of applying for a mortgage when you’re self-employed. Here’s what we offer:
Expert Support
Tailored advice for your financial setup.
Access to Specialist Lenders
Work with lenders who understand self-employed income.
Wide Range of Options
Choose from fixed-rate, variable-rate, and other mortgages.
Transparency
No surprises – we guide you at every step.
Take the First Step Today
Ready to apply for a self-employed mortgage? Contact The Landlords Broker today to explore your options and make homeownership a reality.