Self-Employed Mortgages
The Mortgage Centres specialise in helping self-employed mortgage applicants obtain the mortgages they need. We have access to a wide range of lenders, from high street banks to specialist lending companies. Our brokers have a wealth of knowledge of how to assess your mortgage application.
Get in touch for a free initial, no-obligation discussion about your mortgage situation.
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What we cover in this guide
- What is a Self-employed mortgage?
- Self-employed mortgage calculator
- Self-employed mortgage requirements
- Getting a mortgage when self-employed
- Proof of income for a self-employed mortgage
- Self-certified mortgages
- Can I use dividend income to get a mortgage?
- Getting a mortgage with two years’ accounts
- Self-employed mortgage lenders
- Self-employed mortgage brokers
- What deposit do I need for a self-employed mortgage?
- Frequently asked questions
What is a Self-Employed mortgage?
The term ‘self-employed’ covers many kinds of situations, from sole traders to contractors and those in company partnerships.
Different businesses will have different ways of distributing dividends and/or profits, and not everyone easily understands scenarios like retained profits and dividends, which we look at when considering your mortgage. Our specialist advisers will ensure all the income from your company is considered.
You may be relieved and surprised to know that there are no such things as specific ‘self-employed mortgages’.
Fill out our quick and easy Self-employed calculator below. We only require a few details to see how much you may be able to borrow.
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Self-employed mortgage requirements
Lenders generally base their self-employed mortgage criteria on historical earnings, rather than the amount you are currently earning right now. They will typically consider the average of your last two or three years’ income. As shown by your SA302 self-assessment tax calculation documents, or your full verified accounts.
We have found that one size does not fit all in our dealings across the many different modes of self-employment. Some lenders are more willing or able to help than others when considering applications.
There are a variety of circumstances you can be in and still obtain a self-employed mortgage. An example is when only one year’s accounts are available. Some other instances where we can be an effective mortgage broker for self-employed applicants are:
- Calculations based on retained profit.
- Working with accountant’s certificates.
- Assessments made using only the latest year’s figures.
- Understanding umbrella companies and freelancers.
- Contractors where no accounts are required.
Getting a mortgage when self-employed
In recent years, mortgage lenders have been obliged to apply stricter criteria to mortgage underwriting. Most take a more cautious and risk-averse approach when assessing affordability. This can lead to frustration, especially if you’re self-employed and applying for a mortgage.
However, there are many specialist mortgage lenders willing to lend to self-employed people. These lenders have a deep understanding of the market. This enables them to offer mortgages to a wide range of people, even those with complex income structures.
Below we have highlighted some tips that can help you prepare before applying for a mortgage.
Using an accountant to organise your accounts
Before applying for a self-employed mortgage, it can be essential to seek advice from an accountant.
This is because lenders will ask you for a range of financials as a self-employed person, freelancer, or contractor. In particular, they’ll want your business accounts from the last three years, certified by a chartered accountant.
Presenting these figures in the best possible light can make a huge difference to the amount you could be able to borrow.
How your business set-up can affect your application
The way your business is set up can affect the way lenders look at your application. A sole trader’s profits are seen entirely as income. The SA302 sent by HMRC will show your income received and the tax due for any given financial year.
A partner in a company will need to show each partner’s share of the profits. Your accounts will also need to clearly and easily show the lender your own personal income.
Someone operating their business as a limited company and taking a small salary plus dividends is keeping their business and personal finances separate, so they will need to ensure lenders take both into account.
Proof of income for a self-employed mortgage
It’s essential that you have proof of income when applying for a self-employed mortgage. When your mortgage application is submitted, the lender will require proof as it’s one of the key factors in assessing your affordability. Some lenders can even verify income with HMRC instead of asking you directly to supply it.
Lenders verifying directly with HMRC is more of a practical move to save them time. It saves the lender from asking you for the information. Unfortunately, it does not mean they are really offering mortgages without proof of income.
Self-certified mortgages
Sadly, self-certification mortgages are no longer available in the UK. They were initially rolled out to make the process smoother for self-employed people with complex incomes. Self-certifying your income for the purposes of an affordability assessment was a big success.
After several years of operation, they discontinued self-cert mortgages. The mortgage regulator saw higher risks of defaults from those with complex incomes.
What is an SA302?
The SA302 form, provided by HMRC, confirms a self-employed mortgage applicant’s income. It details income sources, including self-employment and dividends. Lenders use it to meet FCA affordability rules. You can access up to four years of SA302s on HMRC’s website when submitting your return online.
You will need to request original SA302s from HMRC if:
- You do not have access to a printer.
- You are applying to a lender who will not accept self-printed forms.
- You submit your tax returns by post.
You can contact the self-assessment helpline on 0300 200 3310, or you can write to them.
Can I use dividend income to get a mortgage?
If you take a regular salary plus dividends, then lenders will consider the combined amount for their mortgage calculations. However, some lenders don’t work this way, and may look at your business’s net profit instead.
Complications only arise if the combined salary and dividends drawn are greater than your business’s net profit.
The best course of action is to speak to one of our advisers who can make sure your figures are correct.
Getting a mortgage with two year’s accounts
As mentioned, most mortgage lenders are known to request accounts from at least the last three years. Although, you are now able to get an application for a mortgage considered with two years’ accounts. The average profit is then considered across those years.
Mortgage lenders are likely to be more accommodating if you have a larger deposit or equity value.
Self-employed mortgage lenders
Self-employed mortgages come from regular lenders, but some are more open to self-employed applicants. In more recent years, we have seen many more lenders become accessible to the self-employed.
Even mainstream lenders have realised that creating too many barriers could affect their market share in the future. Lenders have varying criteria, so consult a specialist adviser for tailored advice.
Self-employed mortgage brokers
The Mortgage Centres have a huge level of experience dealing with many niche areas of the mortgage market. We understand the intricacies of our self-employed clients’ lives. We know that every business will have a different trading strategy and take this into account in our assessments.
It’s very important to make a proper assessment of your circumstances. We will present your income and assets in such a way as to be most favourable to a potential mortgage lender.
What deposit do I need for a self-employed mortgage?
Before the financial crisis of 2008 and 2009, it was common for lenders to offer 100% mortgages. But, this is not the case anymore.
However, it is not all bad news. Nowadays, you need at least 5-10% of the property’s value. Although, the average deposit in the UK is around 20% as this is likely to get you a much more favourable term.
Aside from fulfilling a lender’s criteria, there are other good reasons to provide a larger deposit. Generally, the larger the deposit you provide, the better the mortgage deals you’ll be able to apply for. This is because most lenders have a range of slightly different mortgage products available, usually grouped into bands or tiers.
Self-Employed Mortgage FAQs
- How much can I borrow for Self-employed mortgages?
- Can I get a mortgage using retained profits?
The amount you can borrow can vary considerably depending on the lender. Each will have their own method of calculating your income. For example, some may simply use the latest year’s tax return as a guide, while others will take an average of the last two or three years’ figures.
Like with a standard mortgage, the larger your deposit and the higher your income, the more you can borrow. Try our self-employed mortgage calculator to gain an indication of how much you could borrow.
Using retained profits for a mortgage can be challenging. Mainstream lenders often don’t count them as income. While they consider dividend income alongside salary, profits left in your business are usually excluded.
However, specialist lenders do consider retained profits. Our brokers can provide a detailed assessment of your options.
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