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 email@example.com 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.