The process of getting a mortgage can be a complicated one at the best of times. With plenty of checks to go through and stacks of paperwork to complete, it can be a stressful part of the home-buying journey. It can be made even more difficult if you are self-employed. Alongside all the regular information you might normally provide, you’ll also have to show 2-3 years’ worth of self-employment records, and if they don’t exist, you’ll have to add in any records of other employment and potentially answer a few more questions.

Luckily, getting a mortgage when self-employed is completely achievable, and with help from mortgage brokers like us, complex mortgages can be quick and easy to secure.

In this edition of our blog, we take a look at mortgages for the self-employed and how long you’ll need to have been working to get one.

Can self-employed people get a mortgage?

Of course. Lenders ultimately want to see that the funds they are lending can be paid back, and whether a huge corporation employs you or you run your own business, there is no difference in whether you can get a mortgage or not. You may be asked to provide more information if you are self-employed or pay a larger deposit but you wil always be asked to prove your income.

What determines if I am self-employed?

Each lender may have different criteria but, in many cases, you’ll be classed as self-employed if you own at least 25% of a business whose takings generate your primary income. Sole traders, directors and contractors are all typically classed as self-employed.

How do I get a self-employed mortgage?

It’s a common question but there is no such thing as a self-employed mortgage. The mortgage offered to a self-employed person will be the same as that offered to someone in a permanent full-time position. You’ll often see them listed as complex mortgages due to the application process being a little more complicated than that completed by those who are not self-employed.

A few years back specific mortgages for self-employed people did actually exist but in 2014 they were banned over fears that approval for unaffordable mortgages was becoming too common.

How long do I have to be self-employed to get a mortgage?

In most cases, a lender will want to see 2-years worth of self-employment accounts before granting a mortgage. Even then, you’ll need to prove you match their eligibility criteria. If you have only become self-employed recently, you’ll need to show a prior work history, ideally in a similar industry to the one you are in now. It’s worth noting that you may find your pool of suitable lenders greatly reduced if you are newly self-employed. The minimum amount of time you must be self-employed is 12 months and you must have completed at least one personal tax return.

Are interest rates higher for a mortgage when self-employed?

No. The mortgage you are offered will be the same as the mortgage offered to anyone else. As long as you can prove your affordability, you’ll be approved for a mortgage just like anyone else. The only things that could see your interest rate change are your credit score and the level of deposit you can provide. The bigger the deposit and the lower the interest rate.

What do I need to get a mortgage if I’m self-employed?

Getting a mortgage when you are self-employed can be a little complex but it’s nothing to worry about. If you can provide the relevant information, getting approved can be easy. Much of what you provide a lender, and broker will be similar to what is provided by anyone else.

Have the following ready for your mortgage application or any meetings you may have with lenders:

• Proof of identity by way of passport or driving licence
• Proof of address via utility bills
• Proof of deposit funds
• 3-6 months of bank statements
• 3 years’ worth of accounts from an authorised accountant or if a sole trader
• SA302s and Tax year Overviews from HMRC for 2-3 years

This should be enough to satisfy a lender, however, they may also ask for proof of forthcoming work.

Is it harder to get a mortgage if I am self-employed?

No. Lenders want to see an income that covers your mortgage’s cost and need to know it’s consistent. If you show some months of good, steady income, then some months of nothing or very low amounts, they may offer you a lower mortgage or refuse to lend at all. Self-employment is often an area of irregular income, but if you can provide 2/3 years of accounts that show how you typically perform, you’ll be in a better position.

Affordability is key in any mortgage application and for those who are self-employed, it can play an even bigger role. Many lenders will want to see that you can’t just afford the mortgage as it is now, but also how it could be in the future. If interest rates were to rise by a percentage or two, is this mortgage still something you can pay for? If your income doesn’t support this, or your accounts show a business that may be struggling, they might refuse your application.

Finally, some lenders put a lot of emphasis on self-employed mortgages and see them as a risk. This could see huge interest rates or stricter criteria. As a result, lenders like this are more likely to reject you. This isn’t always a problem, but, if you spend too much time applying with lenders who view self-employment unfavourably, you could be hindering your chances with the lenders more likely to say yes. The reason for this is that too many mortgage rejections could cause a rejection itself. Speaking to a mortgage broker will help you find the most suitable lenders.

How can I improve my chances of getting a mortgage if I am self-employed?

In much the same way as anyone else looks to improve their mortgage approval chances. You can do several things that give you a decent chance of approval. As well as providing the information we listed earlier you should:

• Check and improve your credit score: View your credit report and see how lenders see you. Experian and other such services can help you get a look at it. If it’s low, perhaps hold off applying for a mortgage for a little while and improve your rating.
• Don’t apply for any forms of credit: If you apply for credit right before you apply for a mortgage, you could find your application a struggle. The credit checks that take place when applying for a credit card, loan or finance plan show up on your credit report and may demonstrate to a lender that you are living beyond your means.
• Save up a sufficient deposit. The bigger the deposit, the less risk for the lender. They can potentially offer you more cash, at lower rates.
• Be sensible with money. If you keep spending money on takeaways, holidays, and other non-essentials, the lender might sense that affordability is going to be an issue. Reign in the spending for a little.
• Have a mortgage in principle. You will need to get an Agreement In Principle before looking to buy a home.
• Don’t change your business model. Moving from sole trader to limited company may see a lender treating you as a totally new business. This being despite the fact you’ve been operating for years.
• Be organised. Ensuring all financial records are complete, the accounts are up to date and your affairs are in order will help you with your application. Failing to provide what is needed could result in delays or rejections.

On the whole, a mortgage for self-employed people is the same as a mortgage for anyone else. You’ll just have to have been in the position for 2-3 years for the best chances of approval. Remember, a mortgage offer lasts for around six months so you don’t have to rush once approved. Speak to our team at Mortgage Saving Experts and allow us to help you find the best lenders for self-employment mortgages.