Self Employed Tips To Get A Mortgage
There is a prevailing belief that obtaining a mortgage as a self-employed individual is an insurmountable task, leaving many with a sense of pessimism and hopelessness when approaching this financial endeavour. However, the reality is often quite different. In fact, there are numerous excellent mortgage deals available for the self-employed, provided you know where to look and how to navigate the process.
A Realistic Perspective
While it is true that the number of self-employed individuals in the UK has significantly increased, some lenders may still have stricter requirements when it comes to assessing the income position of self-employed applicants compared to those who receive conventional salaries. Thankfully, the number of mortgage lenders with such stringent criteria is relatively small, and the majority now welcome applications from self-employed individuals. At Cornerstone Finance, we possess the expertise to guide you in the right direction.
Nevertheless, it is important to acknowledge a few realities when pursuing a mortgage as a self-employed individual. So, if you’re self-employed and looking for a mortgage, you should first know that you’re not alone! There are around 4.3 million self-employed workers in the United Kingdom, which means there is a market for people with such employment status. Lending companies understand the unique financial situation of being self-employed, hence why such products exist.
That said, finding the right loan is still a challenge. That’s why doing your research to determine what products are available and which one works best for you is essential. So, before taking out any loan, ensure you know exactly what types of mortgages are available for self-employed people.
To do that, the best recommendation is to seek professional financial advice. In the interim period, we’ve compiled a list of six helpful hints lower in this guide.
For the self-employed, the financial impact of the Covid-19 epidemic has been severe and potentially long-lasting. Many are still struggling to rebuild their businesses to where they were pre-pandemic as the UK opens up the post-vaccination rollout. Accordingly to the University of Liverpool, the pandemic has significantly affected self-employed individuals in the UK, leaving them with drastically reduced incomes and struggling businesses. Many of these workers have yet to recover from this economic setback.
What are the obstacles?
In the midst of adversity, many self-employed individuals fight back with unique solutions. Take Ivan, a freelance videographer who decided to switch gears and offer virtual tours to real estate platforms. As a result, they can conduct property viewings, especially during the pandemic. These new approaches can help self-employed people reach an even broader client base while enjoying the freedom and flexibility of freelancing. 
Self-employed people may be pessimistic about their future home-buying prospects due to this challenging moment, but some choices can help. Obtaining assistance from a broker with broad market knowledge and the ability to look into speciality lending possibilities is critical. These lenders can delve into the details of an applicant’s income streams, potentially removing traditional roadblocks to obtaining a mortgage.
We’ve put together six top tips if you’re self-employed and looking to get a mortgage
- Consider using a broker: The home-buying journey can be complicated, so having an experienced guide throughout can make all the difference. In addition, brokers have a whole of market experience, so they can outline all the options available to fit your individual circumstances.
- Evidence of two to three years of accounts: Lenders will typically ask to look at two to three years’ worth of accounts as proof you have a good income level. Since Covid-19, it is also essential to show your business has recovered to pre-pandemic levels to instil confidence in the lender you can meet mortgage repayments.
- Evidence of a consistent work stream: It’s critical to show that you’re a dependable borrower by demonstrating a constant stream of labour throughout time. To reassure financiers, presenting a solid pipeline of upcoming work is critical.
- Improve your credit score: There are a variety of strategies to improve your credit score. Simple things like registering to vote, paying off debts, and keeping up with regular payments will add up over time.
- Save a larger deposit: A larger deposit increases your chances of obtaining a mortgage and demonstrates that you are not a risky borrower. Examine your monthly spending to discover where you may save money for a deposit and take advantage of fixed-term savings accounts with a higher interest rate.
- Prepare your financial records: You must present evidence to establish your income, which will differ depending on the lender. Knowing which documents lenders may require and having them on hand will help you save time and speed up the process.
Preparing for a Self-Employed Mortgage Application
We want to elaborate on point six, “Prepare your financial records”, of the top tips if you are self-employed and looking for a mortgage. You must be prepared in advance. Here are some key steps you can take to increase your chances of success:
- Gather your financial records: Make sure you have at least one year’s worth of accounts (or tax returns) available, showcasing your turnover, tax payments, and overall financial status. Ideally, having certified accounts can add credibility to your application. If you haven’t done so already, consider opting for certified accounts for your next financial reporting period.
- Provide evidence of tax payments: It’s beneficial to have proof of your tax payments to HMRC. Recent SA302 forms and tax summaries can be useful in this regard. These documents, which are available for download from HMRC, consist of a “Tax Overview” and supporting “Tax Calculations.” Consulting with your accountant can help you obtain these documents.
- Maintain a clean financial history: Avoid red flags on your bank account and credit card transaction history. Lenders may be concerned if they observe regular payday loan repayments, significant online gambling debts, frequent luxury purchases, or excessive credit card debt relative to their income. While some lenders may have more flexible policies, keeping your financial history free from such indicators is generally advisable.
- Understand your business’s financial position: Take the time to familiarise yourself with your business’s financial situation and the terminology commonly used to describe it. For example, knowing terms like “P&L statement” (now referred to as a statement of comprehensive income) is crucial. Demonstrating a sound understanding of your financials can instil confidence in lenders regarding your past and potential future income. If you have any questions or need assistance, our team at Cornerstone Finance is always ready to help.
By following these steps and seeking guidance from our experienced team at Cornerstone Finance, you can enhance your readiness for a self-employed mortgage application. We are here to assist you throughout the process and increase your chances of obtaining a mortgage tailored to your needs and financial goals.
Being Honest and Optimistic as a Self-Employed Mortgage Applicant
It’s crucial to approach the process of securing a mortgage as a self-employed individual with honesty and optimism. Some applicants, driven by a sense of pessimism, may feel tempted to inflate their earnings in an attempt to secure a larger mortgage. However, this approach is not recommended.
Most lenders are experienced in assessing the accuracy of income claims, and inconsistencies between the evidence provided and the declared earnings can raise red flags. Such discrepancies may lead lenders to either reject the application outright or view it as a higher-risk proposition, potentially resulting in higher borrowing costs. 
In conclusion, there are indeed excellent mortgage products available for self-employed individuals. However, not all of them will necessarily align with your specific needs. That’s why engaging in open discussions about your requirements with our team of knowledgeable and friendly advisers here at Connect Mortgages is wise. We can guide you towards finding an optimal solution tailored to your unique circumstances.
With our expertise and support, you can approach the mortgage application process with confidence and a positive outlook. Don’t hesitate to contact Connect Mortgages today if you are self-employed and searching for a suitable mortgage solution.
