Are You Self-Employed? | What You Need to Secure a Mortgage

Are you self-employed?

You have thoroughly understood your employment status and are comfortable with the benefits. These benefits empower individuals to control their career progression. Furthermore, this flexibility offers significant advantages. For example, you can work extra hard on certain days and network more effectively. This dedication helps you reap the rewards of all your efforts to make your business successful.

You are now ready to buy a property, so you need to secure a mortgage. However, lenders may view self-employed status differently when applying for a mortgage. They will evaluate your eligibility based on criteria different from those employed permanently.

This guide will discuss how being self-employed doesn’t have to be scary when applying for a mortgage. Here’s what you need to secure a mortgage in the UK.

How does a self-employed mortgage differ from other mortgages?

It’s essential to realise that no specific “Self-Employed Mortgage” product exists. Self-employed applicants apply for the same mortgages as employed people. However, lenders review your income differently when assessing applications from self-employed individuals.

Understanding this ensures you access all market options. You also need to know how options may differ based on employment status.

Despite a rise in self-employment in the UK, mortgage lenders consider such income less secure. This is because PAYE-employed individuals have a fixed salary. However, self-employed people often experience fluctuations in earnings.

To address this risk, lenders require self-employed applicants to provide evidence of two to three years of consistent income. They use this information to calculate an average, your ‘basic salary.’

What specific documents do you need?

Regardless of your self-employed business type, you must provide a current ID and proof of address for a mortgage application. Additional documents may be necessary, depending on your business specifics. Here are some common ones that lenders might request:

Limited Company Directors: Most lenders consider your salary and dividends when assessing your average basic income. Depending on their criteria, you may need documents from the past few years (generally two or three). These typically include:

Finalised and certified accounts
SA302 forms or HMRC tax year overviews and tax year calculations
Business bank statements
You may also be asked to provide projected income figures or future business plans.

Finalised and Certified Accounts

When applying for a mortgage, you need various documents. These include finalised and certified accounts, SA302 forms, or HMRC tax year overviews and calculations. Business bank statements are also essential. Additionally, lenders may ask for projected income figures or future business plans.

Partnerships

If you own 25% or more of a business, your partnership profits count as income. This is crucial when applying for a mortgage. However, owning less than 25% of the income does not qualify as self-employed earnings. Your net profit share is used to calculate your base salary. Limited Company Directors must provide supporting documents.

Sole Traders or Freelancers

Proving your income as a sole trader or freelancer is straightforward. You only need to provide evidence of your earnings. Two to three years’ worth of documents are usually required when applying for a loan. These documents include certified accounts and SA302 tax returns or HMRC tax year overviews and calculations.

Contractors

Mortgage lenders assess contractors’ income similarly to freelancers. If paid on a day rate, you can demonstrate your annual salary. Therefore, proof of income should include certified accounts and SA302 forms or HMRC tax year overviews and calculations. You must also provide contracted day-rate evidence and signed contracts to prove ongoing work availability.

How do you improve your chances of being accepted by a lender?

Applying for a mortgage as a self-employed individual is often tricky. However, taking the proper steps in advance can make all the difference. To ensure your application process runs smoothly and you receive an offer quickly, here are some key things you should do before submitting your paperwork:

Improve Your Credit Score:

A credit check is mandatory for all applicants. A higher score makes a better impression on lenders. Here are some tips to boost your score:

Firstly, register on the electoral roll at your current address. Additionally, ensure timely repayments of utility bills and credit cards. It’s important to repay any existing debts promptly. Also, avoid taking out additional credit. Lastly, minimise the use of existing credit arrangements and stay within 50% of credit limits.

Deposit:

Typically, the minimum deposit for a Standard Residential Mortgage is between 5 and 10%. Self-employed applicants do not have to pay more than others. However, a larger deposit can, if affordable, provide access to better lender options and competitive rates.

Financial Preparation

Ensuring a seamless mortgage application process begins with meticulous financial preparation. To improve your chances of approval, have your previous tax years’ accounts reviewed by a certified accountant. If you haven’t engaged one yet, now is the ideal moment to enlist the services of a proficient accountant. An accountant can provide valuable guidance throughout this crucial process.

Moreover, collaborating with a mortgage broker can significantly streamline this journey. Mortgage brokers have access to various lending options across the entire market. They also have relationships with mortgage packagers who specialise in self-employed individuals. These packagers work closely with specialist lenders who understand the unique financial dynamics of self-employment.

Leveraging the expertise of a certified accountant and a mortgage broker enhances your prospects and ensures you secure a mortgage tailored to your specific needs and circumstances.

Thank you for reading our publication “Are You Self-Employed? | What You Need to Secure a Mortgage.” Stay “Connect“-ed for more updates soon!

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Liz Syms

CEO at Connect Mortgages

About the Author

Liz Syms is the CEO and Founder of Connect Mortgages and Connect for Intermediaries, a leading firm specialising in property investment finance. With more than 25 years of experience in the mortgage and financial services industry, Liz has helped thousands of clients secure both residential homes and investment properties.

Renowned for her expertise and commitment to excellence, Liz is passionate about delivering tailored, high-quality advice on mortgages and protection. Her leadership has positioned her as a trusted figure in the sector, and under her guidance, Connect Mortgages has expanded to a national team of over 300 advisers.

Driven by a vision to make Connect Mortgages one of the UK’s most successful mortgage networks, Liz continues to champion professional standards and client-focused solutions across the industry.

Liz Syms

(CeMAP)

CEO at Connect Mortgages

About the Author

Liz Syms is the CEO and Founder of Connect Mortgages, a specialist in finance for property investment. With over 25 years of experience in mortgages and financial services, Liz has helped countless people get their dream homes and investment properties. She is passionate about giving her clients the best advice possible when it comes to financial decisions relating to mortgages and protection and is dedicated to providing the highest quality of service. With her wealth of knowledge in the industry, Liz is a respected leader in mortgages and financial services and has grown her team to over 300 advisers nationally. She strives to make Connect Mortgages one of the most successful companies in its field.

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