Self Employed Mortgages

More people than ever before are turning to self-employment over the traditional employee model. There are very few downsides to going it alone, until you need to raise money.

Getting on the property ladder can be challenging enough in the UK but add self-employment to that and things get tougher still. As self-employed mortgage specialists, Integrity Mortgages knows only too well how difficult it can be.

We have access to advisors in self-employed finance. We also have access to lenders who appreciate the benefits of self-employment and are more than happy to work with anyone brave enough to go it alone.

Self-employment in the UK

According to the Office of National Statistics, there were an estimated 5 million self-employed people in the UK at the end of 2019. That’s around 15.3% of the total workforce.

And yet high street lenders still cannot manage to offer flexible mortgages designed for the self-employed.

Some banks and building societies are slowly adding self-employment mortgages to their portfolio. Take a quick look at your options and you’ll quickly see they aren’t the most flexible products around.

You need a specialist lender with a unique understanding of the opportunities and challenges being self-employed provides.

That’s where we come in.

Self-employed mortgage types

Essentially, a self-employed mortgage is a standard mortgage with a more flexible affordability criteria. Where a traditional mortgage would want to see your employment contract or several months’ payslips, a self-employed mortgage can accept other documentation to prove income.

You will still need to prove your income and demonstrate you can afford the mortgage. You just go about proving it in a different way.

There are typically different self-employed mortgages for different company types:

• Sole trader – If you’re set up as a sole trader you will need at least a full year’s accounts, preferably two or three. The more documentation you have to prove a consistent income over the period, the higher the chances of qualifying for the mortgage.
• Limited company – If you are set up as a limited company, the salary you pay yourself and the dividend will usually count as income. The profit of the company doesn’t usually count, although some lenders will consider net profit if required.
• Partnership – If you’re set up as a partnership, you will need to prove your income and prove how much of the total income is your share to qualify for a mortgage.

Proving your income for a self-employed mortgage

As we mentioned earlier, the main difference between a standard mortgage and a self-employed mortgage is how you prove your income.

Exactly how you go about that depends on how you run things but you have a couple of options:

• Company accounts – Company accounts are formal documents submitted to HMRC to prove your income and be assessed for tax. They can also form the basis of a self-employed mortgage application.
• SA302 – Form SA302 is the self-assessment tax form used to declare income from HMRC. As long as you’re registered for tax, have a UTR (Unique Tax Reference) and a National Insurance number, you can request an SA302 form from HMRC to help prove your income.
• Accountant certificate – An accountant certificate is a formal document from your accountant certifying your income, yearly accounts or financial statement.
• Bank statements – Typically, a bank statement alone won’t be sufficient proof of income for a self-employed mortgage. However, it can be used as further evidence to support other proof and for demonstrating affordability and for supporting your expenditure.

How many years accounts do you need for a self-employed mortgage?

The short answer is, the more the better. However, the lenders we work with are flexible enough to accept between one and three years of accounts. The more years you have been self-employed, the easier you’ll find it to borrow.

• One year of accounts – We may have to work with specialist lenders as many mainstream lenders are reluctant to lend on one year of accounts as it is insufficient to prove consistent income. We can still get you a mortgage though!
• Two years of accounts – More lenders will work with you if you have two years’ worth of accounts. It provides a much clearer picture of your situation and the consistency of your income and outgoings.
• Three or more years of accounts – Most of the lenders we work with prefer three years of accounts. This is the standard used for self-employed mortgages as it provides a sufficiently clear picture of income and outgoings.

What if I don’t have accounts?

If you have yet to submit accounts to HMRC or have only just started self-employment, it will be much more difficult to find a lender.

If you have sufficient evidence of income from other sources as well as your self-employment or are almost at your first anniversary of being self-employed, we still may be able to help.

What else can help me qualify for a self-employed mortgage?

Lenders don’t just use your accounts or income to assess a mortgage application, they also consider:

• Your credit history – A track record of always paying on time and managing debt goes a long way to being accepted. Make sure your credit history is as good as it can be. Pay off as much debt as possible before your application and make sure there are no errors or omissions in your credit report before you apply for a mortgage.
• A track record of steady income – If you’re planning to buy a house, you will need a track record of steady income to prove you can afford repayments.
• Proof of future income – While this can be difficult to achieve for some, if you can prove that you have work lined up for the coming months, this will strengthen your application.
• A good deposit – You only need a minimum of 5% deposit for a self-employed mortgage but the more you can put down, the more favourably your application will be viewed.
• Professionally-prepared accounts – While not mandatory, if you have your accounts prepared and signed off by a qualified accountant, your application carries more weight. You can still use other forms of income if you don’t use an accountant though.

If you’re looking for a self-employed mortgage contact us today to discuss self-employed mortgages and how we can help you.

Important Information

You should be aware that the Financial Conduct Authority does not regulate some forms of buy to let mortgages.

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