What Are the Requirements for a Self-Employed Mortgage?
To get approved for a mortgage, you need to prove you have a reliable income. If you are self-employed, this tends to be a little more complicated. Here we will be talking about all the mortgage requirements for self-employed individuals to be approved.
What is a self-employed mortgage?
There was previously a type of mortgage available called a ‘self-certification mortgage’ where self-employed applicants could self-certify how much they earned in a year, but this type of mortgage was banned in 2014. Now, self-employed people have access to the same types of mortgages as everyone else, but they must provide more evidence of their income as there is no employer to verify their wage.
Who qualifies for a self-employed mortgage?
Sole traders, company directors and contractors are all examples of self-employed individuals who may apply for a self-employed mortgage. If you own more than 20% of a business that is also your main source of income, then lenders will view you as self-employed.
Self-employed people need to prove to the lender that they are earning enough to afford the payments on a mortgage and that that income is sustainable.
What are the requirements for applying for a self-employed mortgage?
Mortgage providers have stricter lending criteria than they did before 2014, when self-certification mortgages were available and before the Mortgage Market Review was introduced. They need to see physical evidence of earnings to determine whether a borrower can afford the mortgage payments before they are approved.
Self-employed borrowers will have to provide the following to prove their eligibility for a mortgage:
- Two or more years of certified accounts, preferably prepared by a qualified chartered accountant.
- A tax year overview from HMRC or SA302 forms from the past two to three years.
- Proof of identity, such as a valid driver’s license and passport.
- A council tax bill.
- Utility bills dated within three months of the mortgage application.
- Bank statements dating back six months from the date of the mortgage application.
- Evidence of upcoming contracts (for contractors).
- Evidence of dividend payments or retained profits (for company directors).
What other factors will lenders consider when deciding a borrower’s eligibility?
Lenders will most likely judge your financial eligibility based on your average income from the past few years, so if you only have certified accounts dating back a year or less, you will probably need to provide evidence that you have regular work or future commissions.
The size of your deposit will also be a factor in a lender’s decision as to whether to approve you for a mortgage. As a general rule, the more you can put down for a deposit, the more attractive your application will be. The same goes for your credit rating – the higher it is, the better your chances are at being approved and the better your mortgage rate is likely to be.
Lenders will also try and work out if you will be able to make your mortgage repayments by asking about your outgoings, and may want to know about your household bills, commuting costs, childcare costs, as well as any other significant financial obligations, such as loan repayments or finance agreements that you owe.
The main difference in mortgage requirements for self-employed individuals is simply the amount of evidence required to verify the stated salary. If your affordability is high enough for the property you want to buy, and you have the information to prove that, then you should qualify for the same mortgage rates as someone in a permanent salaried position.
If you are self-employed and looking to secure a good deal on your mortgage, you can get in touch with our team to see how we can help.