Are you self-employed?
You have built a comprehensive understanding of your employment status and are comfortable with the benefits as it empowers individuals to control their progression. In addition, this flexibility brings some significant advantages, like putting in extra hard work on certain days, networking more effectively, and reaping the rewards of all that goes into making one’s business successful.
With that in mind, you are at a stage where you want to buy a property, meaning you need to secure a mortgage. However, lenders may view the self-employed status differently when applying for a mortgage. They will evaluate your eligibility on different criteria compared to those employed permanently by an employer.
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 particular “Self-Employed Mortgage” product is available. Self-employed applicants can apply for the same mortgage products as employed people, but lenders will review your income differently when assessing applications from self-employed individuals.
Knowing this information is vital in ensuring you have access to all the options on the market and understanding how they may differ based on your employment status. 
Despite the surge of self-employment in the UK, mortgage lenders still view income from self-employed activity as less secure. This is because while PAYE-employed individuals have a fixed salary, it is more common for self-employed people to experience fluctuations in their earnings.
To address this risk, lenders will ask self-employed applicants to provide evidence of at least two to three years’ worth of consistent income, a figure they can then use to calculate an average that serves as your ‘basic salary.’
What specific documents do you need?
Regardless of the type of self-employed business you own, your current ID and proof of address will be required when applying for a mortgage. Additional documents may also need to be provided depending on your business specifics. Here are some common ones that lenders might request:
Limited Company Directors: When it comes to assessing your average basic income, most lenders will take into account both your salary and dividends. Depending on their particular criteria, you may need to provide documents that cover 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.
Partnerships: If you are a partner in business with 25% or more ownership, the profits earned from this partnership can count as income when applying for your mortgage. However, owning less than that percentage of the company will not qualify as self-employed earnings. This is because your share of net profits is utilised to calculate your base salary, and Limited Company Directors must also provide documents demonstrating such.
Sole Traders or Freelancers: As an independent or freelance worker, your proof of income is relatively straightforward since you will only need to include evidence from yourself. When applying for a loan, it’s usually required that you present two to three years’ worth of:
- Certified accounts
- SA302 tax returns or HMRC tax year overview and tax year calculations
Contractors: Mortgage lenders will assess freelance workers’ income in the same way, while those who are paid on a day rate may be able to demonstrate their annual salary. Consequently, proof of income should include the following:
- Certified accounts
- SA302 forms or HMRC tax year overview and tax year calculations
- Contracted day-rate evidence
- 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, but 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 a non-negotiable requirement for all applicants – the higher your score, the more favourable impression you will make. Here are some helpful pointers to up that number:
- Ensure you’re registered on the electoral roll at your current address
- Maintain timely utility bill and credit card repayments
- Repay any existing debts
- Refrain from taking out additional credit
- With existing credit arrangements, minimise the use and stay within 50% of credit limits
Deposit: While the typical minimum deposit amount for a Standard Residential Mortgage is between 5 and 10%, Self-Employed applicants are not necessarily required to pay more than other applicants. However, adding more money will grant you access to better lender options and more competitive rates if you can afford it.
Financial Preparation
Ensuring a seamless mortgage application process begins with meticulous financial preparation. To put yourself in the best position for approval, having your previous tax years’ accounts meticulously reviewed and validated by a certified accountant is essential. If you haven’t engaged one yet, now is the ideal moment to enlist the services of a proficient accountant who can provide valuable guidance throughout this crucial process.
Collaborating with a mortgage broker can significantly streamline this journey. Mortgage brokers have access to a wide array of lending options across the entire market and possess relationships with mortgage packagers specialising in self-employed individuals. These packagers collaborate closely with specialist lenders who understand the unique financial dynamics of self-employment. By leveraging the expertise of both a certified accountant and a mortgage broker, you enhance your prospects of securing a mortgage tailored to your specific needs and circumstances.
