Getting a mortgage may seem like an impossible task if you’re self-employed. Unlike those who are employed by a company, you don't have a steady, predictable income. And once upon a time, banks were wary of lending money to those without a steady cashflow.
Fortunately, things have moved on.
Now there are many ways you can increase your chances of securing a mortgage if you’re self-employed. It might require a little more paperwork, but with some preparation, you can step through the door of homeownership with ease.
This article will provide some useful advice.
One of the biggest challenges for self-employed people seeking a mortgage is proving their income. Unlike traditional employees, self-employed people typically have income that fluctuates from year to year. To address this issue, start planning well in advance of your mortgage application. Ideally, you should have at least two years of steady income history to show a lender.
To prove your income, you'll need to provide detailed documentation. Be prepared to show at least two years of tax returns, bank statements, and financial statements. It's important to keep detailed records of your income and expenses to ensure you have everything you need.
Your lender might also ask for details of your retained business profits, which is essentially your business income minus your business expenses. A more recent trend for lenders is to ask for audited business accounts for self-employed individuals, especially for large loan amounts.
You can also support the accuracy of your income history with HMRC notices of coding, which confirm your tax liabilities, as well as payslips if you have any employees. Having proof of your income from any other sources may also be helpful, such as from rental properties or investments.
It's also important to bear in mind that lenders will take into account any future commitments that might reduce your available funds. Examples include any directors loans payments owed, or any company residual payments due. Expect your lender to take a close look at your accounts, so make sure you can support any figures with evidence.
Choosing a lender that works for self-employed people is an important decision. There are a variety of lenders out there, from traditional brick-and-mortar banks to online and mobile lenders, that offer mortgages specifically for self-employed people. It can be difficult to know which lender is best for you, so it’s important to do your research and understand the different options available. This is, of course, where we can help.
A strong credit score can help you qualify for a mortgage and get a favourable interest rate. Make sure you're paying all your bills on time and keep your credit utilisation low. It's also a good idea to check your credit report to ensure there are no errors.
Having a healthy savings account will stand you in good stead, too. If you're able to prove to a lender that you're adept at saving and dealing with money responsibly, you'll bolster your chances of getting approved for the right mortgage.
Self-employed people may need a larger deposit to qualify for a mortgage. This shows lenders that you're financially stable and can help offset the risk of your fluctuating income.
The most straightforward approach to this is to save consistently and often. Each month, try to put some money away to avoid overspending or getting your bank account in the red. Try to avoid the temptation of splurging with your earnings and have a look at existing bank accounts to see if you could maximise any interest rates.
While it may be tempting to inflate your income to increase your chances of approval, it's important to be honest. Lenders will verify your income, and if they find out you've misrepresented your earnings, it could lead to your mortgage application being denied.
In summary, getting a mortgage when self-employed may be more challenging, but it's not impossible. With careful planning, organisation, and the right approach, you too can secure a mortgage and achieve your dream of homeownership.
You can book an online meeting with one of our advisers at your convenience here.
