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Mortgages and the Self Employed

Self-employed mortgages: How do I get one?

The number of Britons who are self-employed is at its highest level in 40 years, according to the Office for National Statistics.

But while working for yourself brings more freedom, it also comes with a major headache if you want to buy a house.

If you’re self-employed it can be much harder to get a mortgage. You may not have a regular income paying the same amount every month. This can make a lender feel uncertain as to whether you will actually be able to afford your mortgage repayments.

I’m self-employed – why are the lenders so scared of me?

You know you can afford your mortgage payments – and you’re probably paying more in rent.

But lenders find it difficult to assess people who are self-employed. This is because the category covers so many different business types, and different levels of income.

Many self-employed people find their income can go up and down. If you haven’t been in business very long, the lender may also feel that you are not well enough established to expect a regular income in the long term.

How do I show I can afford the mortgage?

Self-certification – where you could just declare your income – no longer exists.

Most of the main high street lenders will want to see two to three years’ worth of accounts or tax returns:

1. Use an accountant
Most lenders will accept your evidence of income in the form of yearly accounts if they are provided by a certified or chartered accountant.

2. Ask for an SA302 form
Lenders are also likely to look at the income you have declared to the tax man in a form known as an SA302. Your accountant will be able to request one for you.

3. Keep tabs on your spending
All lenders now assess how well you can afford a mortgage by looking at all of your regular outgoings including food bills, telephone bills, school bills and maintenance payments. Reduce the amount you spend in the year before you apply – you can read more here.

4. Save for a larger deposit
You are likely to need a deposit of up to 20%, especially if you don’t have a long history of accounts. So you will need to get saving.

5. Improve your credit rating
Pay off any debts as soon as they are due, including credit cards and phone bills, to ensure you have a good credit rating. Ensuring you are on the electoral register at your current address will also help your credit rating.

What can I do if I don’t have two years’ accounts?

There are many more lenders than the ones you see on the high street. Some of these lenders look at each case on its individual merits and may be more lenient.

However, you are likely to need a minimum deposit of 20% and you will pay slightly a higher interest rate than those available on at a high street bank. You will also often only be able to apply to these lenders if you go through a qualified mortgage adviser.

The self-employed dilemma: Shrink the tax bill or grow your earnings?

The amount of any mortgage that you can borrow is primarily based on the amount of money you earn.

Many self-employed people minimise their earnings in their accounts in order to pay less tax. But if you reduce your income, you will also reduce the amount that you can borrow to buy a house.

Therefore the best thing that you can do to get a mortgage is increase the amount you declare to the tax man.

Applying for the mortgage

If you think you’ve got what it takes, then contact me at Integrity IFA Ltd. Using the Contact Us page on this website.