What Income do Mortgage Companies look at for the Self-Employed?

What counts as being self-employed?

For the purposes of a mortgage application, self-employed means that your trading type falls under one of the following categories:

• Sole trader
• Contractor
• Limited Company Director
• Partner (owning 25% or more of the business)

Due to the level of fluctuation in the income of self-employed people, those in such circumstances will be viewed as slightly more risky borrowers by mortgage lenders.

In order to establish a stable income pattern, they will require self-employed applicants to provide proof of income to cover a longer period of their working history. This will usually be a period of two to three years, although it can be as much as five or as little as one year with some specialist lenders.

Proving your income as a Sole Trader

As a sole trader or freelancer, you will need to prove your personal income. The following documents will provide adequate proof of this income:

• Accounts certified by a qualified accountant
• SA302 self assessment forms to cover the same duration

Proving your Income as a Company Director

As a Limited Company Director, you will need to prove your personal salary and dividends for the duration desirable by your chosen lender. There are specialist lenders who are willing to consider your business profits alongside the other income, however, this is less common. We can find you those lenders who are able to offer this option.

As a partner, you must own more than 25% of the business in order for your income derived from the business to be considered in support of your mortgage application. When you meet this criteria, the lender will look at your share of the net profits.

In either case, you will need to provide the following proof:

• Certified accounts
• SA302s
• Business banking statements
• Some lenders will additionally require to see your projected future income and / or business plans to enhance the stability of your application

Proving your income as a Contractor

As a contractor, you may be paid similarly to a sole trader or on a regular day rate. There are lenders who are willing to work with an annualised version of your day rate, however others will just use the information from your tax return as per Sole Traders.

• Fully certified accounts
• SA302 forms
• Evidence of ongoing contract availability

Do Self-Certified Mortgages still exist?

Self-Cert (or self-certification) mortgages have not been available in the UK since 2008, when they were banned by the Financial Conduct Authority, due to a string of unethical lending practices.

Since then, self-employed applicants have been required to fully evidence their income, in order to ensure affordability of the mortgage repayments.

How do you go about getting a mortgage if you are Self-Employed?

There is very little difference in the application process for self-employed people, compared to more traditionally employed people. Other than the need to provide additional documentation to support your income, the process is the same from the applicant’s perspective.

Self-employed mortgage applicants have as much chance as any other applicant in securing a mortgage, so long as they are able to afford the repayments on their mortgage and satisfy  the lender’s criteria. Using a Mortgage Broker like ourselves, can help ensure that you approach those lenders whose criteria most closely matches your circumstances.

How do I improve my chances of my mortgage application being approved?

To improve your chances of securing a mortgage offer, preparation in advance of your application is often a key factor. Here are some simple preparations that can help:

Financial preparation

As a self-employed applicant you have the advantage of having more control over your income than a PAYE applicant. It’s possible to review lender criterias before applying for a mortgage and then tailor your income to meet the loan requirements in the years leading up to your application. It’s also beneficial to hire an accountant, if you don’t ordinarily use one, as the accounts you provide in support of your application will need to be authorised by a certified accountant.

Improve your credit score:

A higher credit rating will always strengthen a mortgage application, you can improve your rating by doing the following:

• Pay all bills and creditors on time
• Ensure addresses are correct on your credit file
• Register on the electoral roll at your current address
• Minimise the use of existing credit facilities

Speak to a Mortgage Broker

Mortgage brokers, like ourselves, can help improve your chances of successfully securing a mortgage  by ensuring  that you only approach those lenders who are likely to approve your application.

Here at Mortgage Advice Centre we can help you prepare in advance of your application, and find the most competitive mortgage deal to match your individual circumstances. This not only saves you time and effort but the potential frustration of a declined application.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.