Self-Employed Mortgage

Is it hard to get a mortgage if you are self-employed?

Not really – you’re treated in a way that’s very similar to someone who’s employed. You’re still assessed in the same way on credit score, age and the property you’re buying. The only difference is how your income is taken into account.

If you’re employed, you provide evidence with your latest payslips. But when you’re self-employed, the minimum evidence is either your first tax return or, if you have a limited company, your first set of accounts. It depends on how long you’ve been trading.

The minimum trading time is 12 months. If you’ve been in business for two years, that’s even better, because that opens up more options. Clients often think it’s harder to get a self-employed mortgage, but normally it’s just about timescales.

If you’re employed, you just need three months’ payslips, although some lenders do require continuous employment for six months. But if you’re self-employed, the minimum is 12 months – or preferably two years.

It’s just because you need to evidence your earnings via tax returns or company accounts.
With the right advice, it can be easier and less daunting.

What type of mortgage can I get if I am self-employed? Can I get a 95% mortgage if I’m self-employed?

You can still get a 95% mortgage if you’re self-employed. You’re not penalised. You still have access to the same mortgage products as an employed person. The mortgage options available are based on your deposit size, your credit score, the property you’re buying, your age and your credit commitments.

Whether you’re a first-time buyer, you’re moving home or remortgaging is taken into account. The self-employed don’t need a specific mortgage or lender. We simply look at how best to get your income assessed.

How many years do you have to be self-employed to get a mortgage? Can I get a mortgage with only one year of self-employment?

Absolutely, you can get a mortgage when you’ve only been self-employed for 12 months. Your options will be more limited, though, as the majority of lenders prefer two years’ history, with two sets of tax returns – or accounts for a limited company.

If you’ve only been self-employed for one year, some lenders may want a projection of what you’ll earn in your second year. It could be done verbally or via an accountant’s letter.

With just one year’s accounts, I recommend getting advice from a mortgage advisor. We will know which lenders will accept that and which won’t. We can help with getting a projection, if needed, and get you prepared in the right way. We’re here to smooth out that mortgage process.

My most recent year’s earnings were less than my average. Will this affect my mortgage application?

Most lenders like to see your most recent two years’ figures and tend to take an average across both. If your latest year has decreased, the lender typically looks at your latest year instead of the average.

Decreasing profits will make your total income lower, resulting in a potentially smaller mortgage. Again, advice from a mortgage advisor is helpful. We may be able to get that decrease ignored, or go to a certain lender to borrow you what you need.

How much can you borrow if you’re self-employed? How many times my salary can I borrow for a mortgage when self-employed?

How much you can borrow when you’re self-employed is different with every lender. On average, lenders will give you around 4.5 times your household income, especially when an element is from self-employment.

But there are lots of other factors to consider. Just like an employed person, lenders still allow for your credit history, the size of your deposit and any credit commitments you have.

It’s becoming harder to simply say that you’ll get a certain multiple of your income, as all lenders are different and there’s so much to take into account.

It also comes down to how your income is assessed. When I’m speaking to someone who’s self-employed and wants a mortgage, we look at how long they have been self-employed. If it’s two years or longer, has the income increased or decreased from the previous year?

Next, what are your expectations? How much are you looking to borrow? We discuss your credit history, your age, credit commitments and your deposit. I’ll use all this information to put together a plan and confirm how much you can borrow and what it will cost, to build a budget.

What mortgage deposit do I need if I’m self-employed? Can I use my self-employment grant as a deposit?

You can still get a mortgage with a 5% deposit. Lenders take into account your credit score, age, commitments and affordability. The deposit required is generally the same for the self-employed as for the employed.

It will just depend on what you’re looking to buy and how much you can borrow. The gap will be the deposit you will need. It could be 5% or up to 10%, or perhaps more.

On using the self-employed grant as a deposit, there’s no set criteria around this. Lenders always ask where the deposit is coming from – usually savings or a gift. Using a self-employed grant would be assessed on a case-by-case basis.

Your deposit needs to be proven to your solicitor during the buying process. To use a self-employed grant as your deposit, get some advice. Let a broker put a plan together with the available options, and you will know exactly where you stand.

What are self-certification mortgages? Do they still exist?

Self-certification, also known as self-cert, is where you get a mortgage without having to prove your income. They don’t exist anymore – they stopped around 2008.

You would just put a signature down to say that you earn X, even if you don’t. This happened a lot before the crash in 2008, when there were a lot of mortgages where, in the end, people just couldn’t afford them.

People used self-cert to get a bigger mortgage and a more valuable home. But it unfortunately didn’t end well. Now, if a lender can’t automatically verify your income, they always ask for proof.