Mortgages for the self-employed
Self-employed mortgage options
There aren’t any specific mortgage products developed for self-employed home buyers. This means that the affordability criteria are consistent whether you are employed or self-employed. You do not have to consider different interest rates or types of mortgage depending on your employment status. The main differential for self-employed homebuyers is in the assessment process that lenders use to consider whether your application is affordable. For an employed person this process is much simpler since their income tends to be stable and can be easily demonstrated through payslips and P60’s. For self-employed mortgage applicants, demonstrating affordability can be more complex, and the requirements vary significantly between different lenders.
Securing mortgage lending when self-employed
All lenders have assessment criteria they need to comply with, and one of the most crucial is affordability. A lender cannot make a mortgage offer to an applicant that they do not think will be able to keep up with the repayments. The challenge for self-employed people is that their income may be variable, and it can be harder to predict their anticipated income over the coming years. This same scenario applies to people such as company Directors, whose income may fluctuate depending on dividends declared and bonuses achieved. Revolution Finance Brokers specialise in just these scenarios and work with an established network of lenders to offer competitive mortgage terms and cost-effective rates alongside a streamlined application process.
Demonstrating affordability for a self-employed mortgage
To pass an affordability assessment, a self-employed applicant must be able to demonstrate their income. In some cases, this verification can be completed through HMRC records, and this will likely become more mainstream in the future. One of the processes in place to assist is an SA302 form, which is the self-assessment tax form submitted to HMRC to evidence your self employed income. Most lenders will request a copy of accounts for your self-employed business for up to the last 3 years however, some lenders will simply require a copy of your SA302 forms. Please note that self-certification mortgages are no longer available. This product required applicants to self certify their income as the basis for an affordability assessment alongside a mortgage lending application. Due to the inability of lenders to responsibly verify self-certified information, this option no longer exists.
Obtaining copies of your SA302 forms
If you do not have copies of your SA302 forms to show your declared income, you can download copies from the HMRC online portal for up to the last 4 years. You can also request hard copies from HMRC if you submit your returns by post. To contact HMRC and request copies of previous SA302 submissions, contact their helpline on 0300 330 3310 and have your NI number and UTR number to hand.
Your SA302 will show:
- Your declared annual income per tax year
- How much income tax you paid
- Your National Insurance contributions for the tax year
- All income received including your salary, dividends and interest payments
Funding available on self-employed mortgages
The amount you can borrow will vary between lenders, and how they calculate the maximum lending value against your self-employed income. For example, some lenders take into account your income for the previous year, and others will work based on the average over the past three years. There are also variances between how lenders categorise relevant income for this calculation. If you are unsure whether your self-employed income will be considered eligible for the mortgage lending you are looking for, or need support in navigating the application process and finding the right lending for you, give us a call on 0300 304 3040. Our team will be delighted to help you understand how to access a self-employed mortgage!
Which income is considered in the mortgage calculations?
As a self-employed person or a business owner, you may have retained profits within your business. This is where your business has made profits over and above the amount that you have drawn from it. Whether or not retained profits are taken into account in the affordability assessment depends on the lender. Specialist lenders who are familiar with mortgages for self-employed people or business owners do take this income source into account, whereas more mainstream lenders will often only look at personal income to decide whether they can offer to lend. Likewise, dividend income is generally considered eligible income, however, some lenders will not include this in their affordability or maximum lending calculations. Issues can arise if your total income from your business exceeds the net profit declared. In this case, it is essential to seek expert advice before submitting a mortgage application or choosing a lender to ensure that you are submitting your application correctly.
How many years of self-employed accounts are needed to obtain a self-employed mortgage?
If your business has been trading for a short while and you have a set of accounts for only one year, you can seek a specialist lender who is willing to consider applications with shorter trading history. Revolution Finance Brokers can advise on which lenders are open to these applications, and which are not! Should you have two years of accounts, more lenders will be available for you to consider. Usually, these lenders will consider the average profits of the last two years in deciding what mortgage they can offer. The value of the deposit you have available will also impact the application process. For self-employed people with three years worth of accounts, more lending options are available. Although it has traditionally been necessary to have three years worth of accounts this is no longer mandatory, and some lenders are happy to consider applications with a shorter trading history. There are also options to apply for funding based on only the last years trading; for example, if your business or industry has seen a sharp increase in profitability or turnover in the last 12 months, and can demonstrate that this level of profit is likely to be sustainable for the future.
Self-employed mortgages with bad credit
Typically, it is much more difficult to secure a mortgage if you have experienced credit issues in the past. However, there are mortgage options available, and our property team can help advise on the best products and lenders for your circumstances. If you have had an application declined by your bank, then you also have other options available to you. Being declined by one bank is not an indication that other lenders will not approve your application. In these circumstances, the power of using an expert mortgage broker comes into play. The team at Revolution Finance Brokers have years of experience and a strong network of lenders who can consider specialist lending and niche applications to help every applicant secure the mortgage funding they need. Get in touch at firstname.lastname@example.org and let us know a little more about your circumstances and the type of mortgage you are looking for. We will work with you to find the best deals on the market and secure your mortgage lending.
How are self-employed mortgages different from employed mortgages?
The quick answer is - they aren’t! There are not special mortgages available for self-employed people, although the affordability criteria is important to understand since this will vary between applicants with different employment statuses.
How can I get a self-employed mortgage?
An essential task for a self-employed person looking for a mortgage lender is to make sure you are only approaching lenders who accept applications from self-employed people. Different lenders have different requirements and policies about what parts of your income they consider when determining affordability. Give the Revolution Finance Brokers team a call, and we will make sure you find the best lenders who will be happy to consider your application.
How can I get a self-employed mortgage with no proof of income?
The biggest challenge for a self-employed person looking to purchase a home is being able to prove your income and thus demonstrate affordability. Our team can help you work out the best way to demonstrate your financial stability, and build up a history of income from your self-employed business to satisfy the requirements of your mortgage lender. This can be done through HMRC documentation, or through submitting copies of your filed accounts.
Can I get a self cert mortgage?
Self cert mortgages no longer exist. They were created to help self-employed people self certify their ability to keep up with repayments on mortgage lending. However, the system was subject to abuse and the responsibility placed on lenders to check affordability before offering mortgage lending has since been increased.
Can my SA302 prove my income?
Yes, a SA302 from HMRC shows a record of your taxes filed for each year of trading, and is often accepted by mortgage lenders as an alternative to filed accounts. Please note that not all lenders will accept an SA302, so get in touch with our mortgage team for support in finding the right lenders who will be happy with your proof of income.
How much can I borrow in mortgage lending if I am self-employed?
As with any mortgage, how much a lender offers will depend heavily on their lending criteria and what parts of your income they will consider in making those calculations. Some lenders look at your income for the previous year, and others will require an average over the last two or three years. They will use this figure to determine the maximum they are willing to lend.
What can I do to find the best mortgage rate if I am self-employed?
The best option is to speak with a specialist mortgage broker. Our job is to find the right mortgage and the best deal available to meet your mortgage requirements. Lenders do not offer different interest rates for employed or self-employed people, so finding the best deal is about choosing a lender who understands self-employment income streams and will be happy to consider your application.
Can I get a mortgage if I have been declined by my bank?
Yes, you can - being turned down for finance can be disheartening, but it does not mean that another lender will not find a deal that suits you. Give us a ring if you are concerned about securing finance or have been rejected before, and we will run through your options.
Do my retained profits count as income for mortgage purposes?
This varies considerably between lenders. Some will certainly include your retained profits as part of the assets you have achieved through your self-employed business. However, others will not include this figure and will only consider the income you have drawn from the business. If you need to find a specialist lender who will be able to assess your income and assets as a whole, get in touch with the Revolution Finance Brokers mortgage team and we will match you up with the best lender.
Does dividend income count towards my mortgage application?
As with retained profits, dividends are also treated differently by different lenders. Some will consider dividend income as part of your overall income stream, however some will not. Some lenders will consider the net profit of your business rather than considering your personal income and dividends. Give us a call if you are in any doubt as to which figures to declare as income for your mortgage application and we will be happy to help!
How many years of accounts do I need to apply for a self-employed mortgage?
Typically, lenders require 3 years worth of accounts to consider an application. However, as self-employment becomes more common, specialist lenders offer greater flexibility. It may be that your business has grown considerably in the last year, and so looking at figures from 3 years ago will not reflect your current financial position. You may have only started trading within the last year or two, so be unable to produce 3 years worth of accounts. If any of these circumstances apply, get in touch with a mortgage broker who will be able to find the right route to a successful mortgage application for you.
Can I get a self-employed mortgage if I have a poor credit rating?
You can - although there will be fewer lenders to compare, there are always options to support people with a poor credit history in turning around their financial situation. Your eligibility will depend on how long ago your bad credit rating was instigated, the deposit you now have available, and other factors such as your ability to prove regular income and the value of the property you wish to buy.