Self-Employed Mortgages
How to Secure the Right Mortgage When You’re Your Own Boss
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Being self-employed offers incredible freedom. You’re your own boss, and you control your income, lifestyle, and future. But when it comes to securing a mortgage, that same freedom can come with significant hurdles. If you’re self-employed or a contractor, you’ve likely heard that it’s more challenging to get approved for a mortgage compared to traditional employees. This challenge often leaves high-net-worth individuals and successful entrepreneurs wondering: Why is it so hard to secure a mortgage when I have a robust income?
In this comprehensive guide, we’ll walk you through everything you need to know about self-employed mortgages. Whether you’re a seasoned entrepreneur or a contractor with fluctuating income, this page will provide valuable insight into how you can improve your chances of approval. Most importantly, we’ll show you how Premier Mortgage Advisers can guide you through the process, making sure you get the best possible mortgage deal despite the complexities of self-employment.
The Self-Employed Mortgage Myth
First, let’s clear up a myth: It’s not impossible to get a mortgage if you’re self-employed. However, the process is more complicated. Lenders want to see stability, and traditional employees can often provide this with simple payslips and employment history. When you’re self-employed, your income is often seen as unpredictable, even if it’s higher than many salaried workers.
This leads to stricter lending criteria for self-employed applicants—criteria that often leave even high-net-worth individuals scratching their heads. But here’s where we come in. At Premier Mortgage Advisers, we specialize in understanding complex financial situations and helping people just like you get approved for mortgages.
Why Is It So Difficult for Self-Employed Borrowers to Get a Mortgage?
The Core Problem
Lenders are in the business of reducing risk. When they look at a salaried employee, they see stability in the form of regular paychecks and predictable employment. Self-employed individuals, on the other hand, have fluctuating incomes, and this uncertainty makes lenders cautious.
The Key Issues:
- Inconsistent Income: If your income varies month-to-month, even if it’s substantial overall, lenders may perceive it as risky.
- Proving Income: Traditional employees can show a couple of payslips, but self-employed individuals need to provide years of accounts, tax returns, and sometimes even business forecasts.
- Short Trading History: Many lenders require at least two to three years of trading history, which can be a problem for newer businesses, even if they’re profitable.
- Tax Efficiency vs. Income: Self-employed individuals often manage their income in a tax-efficient way, which may reduce their reported income on paper. Unfortunately, lenders use that lower figure when assessing mortgage affordability.
These hurdles may sound intimidating, but don’t panic just yet. There are solutions, and there’s a way to present your financials that can help unlock the mortgage you need.
2. Income Verification
Most lenders will require:
- Two to three years of tax returns (SA302 forms from HMRC).
- Year-end accounts prepared by a certified accountant.
- Evidence of regular business income, which could include contracts, invoices, or a business plan showing steady revenue growth.
If your income fluctuates, lenders may take an average of your earnings over the last few years, or they may choose the lowest figure, which can be detrimental. This is why it’s crucial to work with professionals who can present your financials effectively.
3. Deposit Requirements
Self-employed applicants might need to offer a higher deposit to offset the perceived risk. While a typical mortgage might require a 10% deposit, lenders could ask for 15% or more for self-employed borrowers.
4. Credit History
A solid credit history is essential for any mortgage application, but it becomes even more critical when you’re self-employed. Lenders want to see that you’ve managed your finances responsibly, so maintaining a good credit score is a must.
5. Affordability
This is where the expertise of Premier Mortgage Advisers becomes invaluable. Lenders will look at your total income and outgoing expenses to assess whether you can afford the loan. We help self-employed individuals present their finances in the best possible way, ensuring all legitimate income is accounted for.
The Premier Mortgage Advisers Solution
Assessing Your Situation
Before approaching any lenders, we’ll conduct a thorough assessment of your financial profile. We’ll review your accounts, tax returns, and income structure to get a clear picture of your situation.
Tailored Mortgage Solutions
We don’t believe in one-size-fits-all solutions. Once we’ve assessed your financials, we’ll tailor a mortgage strategy that matches your unique circumstances. We have access to a broad range of lenders who understand the complexities of self-employed income, and we’ll match you with the right one.
Preparation of Documentation
We work with you to prepare all necessary documents, ensuring everything is in order before you approach a lender. This includes reviewing your accounts, liaising with your accountant, and making sure your financials are presented in the best possible light.
Negotiating the Best Deal
With our extensive knowledge of the market and close relationships with lenders, we can negotiate the most favorable terms for your mortgage, even if your case is complex. Our aim is to secure a deal that offers the best rate, tailored to your financial needs.
FAQ
Can I get a mortgage if I’ve been self-employed for less than two years?
Yes, some lenders are open to considering applications from individuals with less than two years of self-employment, especially if your financials are strong. We can help you find the right lender for your situation.
How much deposit will I need for a self-employed mortgage?
Typically, self-employed applicants may need a deposit of 5-10%. However, if your financial profile is complex or your income is inconsistent, lenders may request a larger deposit to reduce perceived risk.
What documents do I need for a self-employed mortgage application?
You will usually need:
- Two to three years of tax returns (SA302 forms)
- Year-end accounts prepared by an accountant
- Proof of income, such as contracts or invoices
If you have less trading history, business projections or future contracts can be helpful.
How do lenders assess my income if I’m self-employed?
Lenders often average your income over the last two to three years using your tax returns (SA302) and year-end accounts. If your income fluctuates, they may take the lowest figure or request additional documentation.
Can I still get a mortgage if I have a limited company?
Yes. Lenders will typically assess your personal income from the company, such as salary and dividends. At Premier Mortgage Advisers, we ensure that your full income is represented accurately, including any retained profits.
Will being a contractor affect my mortgage application?
Contractors can get a mortgage, but it can be more complex due to irregular or project-based income. Some lenders specialize in mortgages for contractors, and we can help you secure the best deal based on your contract history and income.
What can I do to improve my chances of getting a mortgage as a self-employed individual?
Maintaining a strong credit score, preparing at least two years of financial records, and keeping your accounts well-organized are key steps. We can help you optimize your financial profile for mortgage applications.
Are interest rates higher for self-employed mortgages?
Interest rates for self-employed mortgages aren’t necessarily higher, but the terms can vary depending on your income consistency and the lender’s assessment of risk. We work to negotiate the best possible rates based on your financial situation.
Book a Consultation Today
Don’t leave it to chance. Contact Premier Mortgage Advisers today and let us guide you through the process. Our team of experts will work with you to ensure your financial profile is presented in the best possible light, giving you the best shot at securing your dream home or investment property.