After the Great Resignation and an increase in small businesses across the western world, there are more self-employed people in the world than ever before. But can you get a mortgage if you’re self-employed?
I count myself among them. I have been self-employed since 2008 and love every minute of it!
But being self-employed does come with challenges, one of which is getting any kind of finance, especially a mortgage.
It’s not impossible though, far from it, but you will have extra hoops to jump through.
Let’s discuss self-employed mortgages and how to get one.
What is a self-employed mortgage?
There is actually no such thing as a self-employed mortgage. The old days of self-certification mortgages are long gone.
They were banned back in 2014 as people were applying for unaffordable mortgages and setting themselves up for failure.
Now, self-employed people apply for the same mortgage products as everyone else. It’s just your income is assessed slightly differently.
Is it difficult to get a mortgage if you’re self-employed?
It can be difficult to get a mortgage if you’re self-employed. Much depends on how you structure your business and how complete your books are.
You’ll need to prove your income, preferably over at least 3 years. If you use an accountant and have tax returns for that period, you should be fine.
If you work more informally and do your own taxes, you’re going to need to prove your income in multiple ways.
Essentially, the more evidence you have of stable income, the easier you’ll find it to qualify for a self-employed mortgage.
You will need to provide:
- Proof of ID
- 3-6 months’ bank statements to show your income and outgoings
- 3 years of accounts or tax returns
- Evidence of savings or money for the deposit
As you can see, the evidence you need to back up your mortgage application is mostly the same as anyone else.
An employee would need to provide salary statements or wage slips to demonstrate their income. You’ll need to provide accounts to prove yours.
How will a lender assess mortgage affordability?
To pass the mortgage affordability test, you’ll need to prove you can comfortably afford repayments.
- If you’re a sole trader, your net profit will be used to assess affordability.
- If you run a limited company, your net profit and dividends will be used.
- If you’re a contractor, your average income will be assessed the same as an employee
Aside from how you prove your income, the affordability test is the same for the self-employed as it is for anyone else.
The lender will assess your income, outgoings, lifestyle and calculate whether you can comfortably afford the repayments.
If you can do all those things and have a decent credit score, you should be fine.
Do self-employed people pay higher interest?
Self-employed people don’t necessarily pay higher interest on a mortgage. It all depends on how much risk you present.
If you have been self-employed for a while, use an accountant to do your books, have tax returns and can prove your income beyond reasonable doubt, you’re no more a risk than anyone else.
So you should pay the same interest as anyone else.
If you find it harder to prove income, you may be charged higher interest as you’re seen as higher risk.
How to improve your chances of securing a mortgage
There are a few things you can do to improve your chances of securing a mortgage.
They include:
Improving your credit score – Do what you can to improve your credit score, never miss a payment and look like someone who is good with money.
Save for a deposit – A deposit insulates the lender a little from default. The larger the deposit, the lower the risk to the lender.
Get an accountant – Lenders aren’t allowed to ‘take your word’ for it that you can afford a mortgage. You’ll need to prove it and books provided by an accountant go a long way with that.
Make sure your tax is up to date – Some lenders want to see your form SA302 which is a tax overview. You can download them from the government gateway if you need them.
Get a mortgage in principle first – Getting a mortgage in principle is like trying before you buy. You can test to see if you would qualify with no impact on your credit score.
Use a mortgage broker – If you’re finding it difficult to qualify for a standard mortgage, talk to a mortgage broker. You don’t usually have to pay and they can make the different between qualifying and not.
Self-employed mortgages
As you can see, the self-employed have access to the same mortgages and financial products as anyone else. It’s just the way you qualify for them that differs.
If you have sufficient income to pay the mortgage and can prove it, you should have no problem qualifying.
There are no guarantees of course, but all other things being equal, it’s easy enough to qualify if you do the groundwork first.
