The process and preparing thoroughly significantly enhance your chances of approval
Being self-employed brings a unique set of challenges, especially when it comes to securing a mortgage. However, it’s a common misconception that being your own boss disqualifies you from getting a mortgage. Understanding the process and preparing thoroughly can significantly enhance your chances of approval. There’s no specific mortgage product exclusively for the self-employed. You apply for the same loans as everyone else but with a greater emphasis on proving your income reliability. The main difference lies in demonstrating your financial stability and providing comprehensive documentation to support your application.
Do self-employed individuals pay higher rates?
You shouldn’t face higher mortgage rates solely due to your employment status. If you can substantiate your income to the satisfaction of lenders, you should access rates comparable to those offered to salaried employees. Factors such as your deposit size and credit score play a more significant role in determining your interest rate.
Essential documentation for self-employed applicants
When applying for a mortgage, self-employed individuals need to provide standard documents such as proof of identity and address. Additionally, you’ll need to supply evidence of your income, typically two or more years of certified accounts, SA302 forms, or a tax overview from HM Revenue & Customs (HMRC).
How lenders assess self-employed income
If you’re a sole trader, lenders generally assess your net profit over the past few years. For limited companies, they might consider your share of net profit or salary and dividends. Contractors may have their income averaged over several years, with the possibility of using an annualised day rate.
Improving your mortgage application prospects
To enhance your chances of securing a favourable mortgage deal, consider the following:
- Gather comprehensive income records: Ensure you have at least three years of SA302 forms ready to present to lenders.
- Hire a qualified accountant: Engaging an accountant to prepare your accounts adds credibility to your application. Just be cautious not to minimise your income excessively to reduce tax, as this could limit the amount you can borrow.
- Save for a larger deposit: A significant deposit can unlock a wider range of mortgage deals, some of which may be more amenable to self-employed applicants.
Importance of a good credit score
A good credit score is crucial in securing a mortgage. Simple steps, like registering to vote or closing dormant credit accounts, can improve your score. Review your credit report before applying to correct any inaccuracies and enhance your approval prospects.
Duration of self-employment and mortgage eligibility
Most lenders prefer two to three years of accounts before approving a mortgage. Even if you haven’t been self-employed for this period, you might still qualify, particularly if you’ve transitioned from a similar full-time role. Be ready to provide whatever financial history you have, and be prepared for additional scrutiny.
Finding the right mortgage deals
Applying for multiple mortgages can negatively affect your credit score. To avoid this, discuss your requirements with our experienced team. We are well-versed in lender requirements and can guide you towards lenders who are more inclined to approve self-employed applications, helping you secure the best possible deal.
