Self employed mortgage considerations
Your home may be repossessed if you do not keep up repayments on your mortgage
A step-by-step guide to help you through your application
There are now more self-employed people than ever before in the UK[1]. In April 2014 new lending criteria, known as ‘Mortgage Market review’, was introduced. This has made some self-employed people feel it can be more difficult to get a mortgage than it used to be.
Be positive
There are many things you can do to improve your chances of being approved for a mortgage. You’re, generally, able to apply for the same mortgages as everyone else. We look at how you could improve your chances and the pitfalls to avoid.
Different businesses may be judged differently
Your mortgage lender will probably apply different rules to your application depending on whether you’re self-employed, a partner or a director of a limited company.
Self-employed (including sole traders/partnerships and Limited Companies)
If you’re self-employed the information that you need to provide your lender with evidence of your income should be reasonably straightforward. Each lender will have its own policy in relation to what information they require. At Clydesdale Bank we require your last three years financial statements.
Partnerships
If you’re in a partnership the lender will look at the business profits and your share of these profits. Your accounts will show the lender the figures they need to see.
What you need
You need to be able to prove your income to the mortgage lender. As a self-employed person this can be a bit more difficult as your income can fluctuate more than a salaried person’s income.
Put simply you’ll need:
- at least two years' accounts
- a track record of regular work
- a good-sized deposit
- good credit history
- a registered accountant.
How do you prove your income?
The best place to start when you’re trying to provide evidence of your income is with a good accountant. They can help make sure your figures are suitable for use by the lenders. The sort of things that you can use to prove your income include:
- payslips
- P60s (your end-of-year tax statement)
- SA302 tax returns
- business accounts
- pension statements
- financial accounts.[2]
Tips to make the process simpler
- Get advice from an accountant and a financial adviser before you apply
- Keep up-to-date accounts
- Have a good deposit
- Make sure your credit score is as strong as it can be
- Show you’re worth the mortgage – have an established record of self-employment and the figures to prove it
- If you’re remortgaging you could initially try your current provider, as you have a history with them
- It helps if your company’s turnover and profits are increasing, showing a strong business
- Switching business type (for example, from sole trader to limited company) can delay your application.[3]
- Get advice from an accountant and a financial adviser before you apply
- Keep up-to-date accounts
- Have a good deposit
- Make sure your credit score is as strong as it can be
- Show you’re worth the mortgage – have an established record of self-employment and the figures to prove it
- If you’re remortgaging you could initially try your current provider, as you have a history with them
- It helps if your company’s turnover and profits are increasing, showing a strong business
- Switching business type (for example, from sole trader to limited company) can delay your application.[3]
It can seem like it’s more difficult for self-employed people to get a mortgage. If you follow the tips above they may improve your chances when you apply for a mortgage when self employed. Lenders are trying to make sure you can afford to make the repayments. Use your accounts, tax returns and other documentation to show them you can.
Your next steps
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