Mortgages for the Self Employed
According to the Office for National Statistics, the number of self employed workers in the UK has risen steadily over the past 15 years, from 3.3 million in 2001 to 4.8 million in 2017. Inevitably, the mortgage lending market has had to adapt.
Previously, the self employed – regardless of their area of work – were often unable to get the same kinds of mortgage deals from lenders as salaried workers, whose income was perceived as more dependable.
The truth in 2019 is rather different. Depending on the individual circumstances, being self employed should not be a barrier to getting a mortgage. However, myths and misunderstandings are still common, so here we attempt to provide some clarity for those embarking on the journey towards getting a mortgage when you’re self employed and becoming a home owner.
Can I get a mortgage if I’m self employed?
Yes, The Cambridge offers a range of mortgages for self employed workers, whether you’re a tradesperson, entrepreneur, partner, director, artist, musician or belong to another profession. If you can prove your income and show you can afford the repayments, a self employed mortgage could be for you.
I’ve been self employed for less than two years, can I still get a mortgage?
Even if you only have one year of accounts as a self employed person you could still be eligible for certain Self Employed mortgage products – although further verification of income may be required by your lender.
Do self employed mortgage applicants get the same rates?
This depends on your situation:
If you have two or more years' worth of accounts then yes, as a self employed person you can receive the same mortgage interest rates as someone who is working as an employee. However, to do this you must be able to prove your earnings, and this can be a more complex process for a self employed worker than for a salaried employee.
If you have only one year of accounts, there are specific Self Employed mortgages available but these are offered at different rates to the wider product range.
How do I prove my income?
Lender requirements may vary, but, as an example, at The Cambridge we require the last 2 years’ tax calculations (document SA302) and tax year overviews to enable you to apply for any mortgage in our range.
For Limited Companies and Partnerships we also require 2 years’ full financial accounts if the LTV (loan to value) exceeds 60% or if borrowing is to be based on a share of net profits. All documents supplied will need to be dated within the last 15 months.
What about tax and HMRC?
Most lenders will want to see how much income has been reported to HMRC as well as proof of the tax paid. The HMRC or your accountant can provide both an SA302 and a “tax year overview” to demonstrate the level of tax paid.
You can print your own tax calculation and "tax year overview" if you do your Self Assessment tax return using either HMRC’s online services or through your accountant’s commercial software. It may be called something different in the software – for example ‘tax computation’.
Be aware that if an accountant has looked at reducing a self employed person’s taxable income, to reduce the tax liability, this could present a problem when trying to prove income to a mortgage lender. If you think you might wish to apply for a Self Employed mortgage at any point in the future, you should speak with your accountant to ensure you do not encounter any avoidable obstacles.
How can I give myself the best chance of getting a Self Employed mortgage?
Like any lender, The Cambridge will pay close attention to your income and your outgoings before deciding on your eligibility for any mortgage product. As well as making sure your accounts are in order (see above). If you are thinking of applying for a Self Employed mortgage in the near future, it is wise to carefully balance your personal spending for at least the six months prior to making an application.
By avoiding “red flag” personal spending behaviours such as expensive outlays and frequent spending on luxury items, you could be more likely to be approved for a mortgage and more likely to receive a competitive rate. This is the same for all mortgage applicants – lenders will be seeking to establish that you are able to afford the mortgage repayments.
What do I do now?
We have lots more information about buying a home and how to get a mortgage. Click through to our Mortgages Help Centre to find guides on applying for a mortgage, repaying your mortgage, remortgaging and more. Or if you're ready to see how The Cambridge could help you, simply fill in your details on our Self Employed Mortgage page and you'll see a list of the Self Employed mortgage products which may be suitable for your circumstances.
If you'd like to discuss your options, you can book a face-to-face or telephone mortgage appointment with an adviser on our website.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
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