Nearly 4.5 million people now work for themselves (15% of the workforce), which is almost double the number of those who worked 40 years ago.
However, the financial system is not keeping up with the times: Only 10% of home loans offered to self-employed people since 2010
Trussle’s 2020 data shows that 76% of self-employed borrowers will be offered a mortgage, compared to 86% in retirement and 89% in those with poor credit.
It is therefore more difficult to get a mortgage as a self-employed person. We’re here to assist you!
You will be considered self-employed if you are a sole trader, or have a 20% or greater stake in a company.
Two customers of a lender may be considered self-employed if they own 20% or more of the same business.
These may be considered self-employed.
Sub-contractor earning income from more than 1 contract
Assisting in the running of a business
Any person employed in a limited company, limited liability partnership or partnership that offers a reward package including dividends and/or profit sharing.
Be careful if you’re a sole trader and are thinking of setting up a business. Lenders will often ignore your trade record and begin from scratch when reviewing your company records. This may require at least two years of accounts.
Working for yourself gives you a strong incentive to pay the least tax possible. Self-assessment means that the more you declare, you pay less tax. Your accountant or you will be able to tell you about all the tax deductions and allowances that can be used as offsets for income to reduce the total. Remember that your mortgage lender will want the total to reflect your ability to borrow. Your ability to borrow is determined by how much you earn.
You will need bank statements, details about debt repayments, outgoings, such as childcare costs, vacation spending, and pension contributions, just like employed applicants applying for a mortgage. For self-employed applicants, however, you will need a record of your earnings for the last three years.
Halifax asks for accounts that show net profit (for sole traders), net share (for partnerships), or salary and dividends [for directors of limited businesses].
Clydesdale/Yorkshire may look at the net profits of the business to determine if the bank is in favor of the borrower.
Many businesses don’t have an upward trend in profits. There may be good and bad years or months, but you could also keep equity in your business. Some lenders may be hesitant to lend money if there is a downward trend. Others might be more flexible. While many lenders base their assessments on the average of three years’ profit, others may use your worst year.
You may not require several years of accounts if you are a contractor with formal contracts and paperwork showing fixed earnings. Lenders will usually run a credit check on you, and your score will be part of that assessment.
Lloyds and Precise Mortgages will accept a two year record. Some lenders, such as Lloyds, may also take the first year of your earnings as income.
A higher rate of mortgage could be requested for those with a better track record than you, as well as a higher deposit. The average deposit could be 20%.
Dudley Building Society introduced a 3-tier offer in 2015 with a different interest and loan to value for applicants who had one, two, or three years of accounts.
A qualified accountant/bookkeeper will verify your paperwork and will require the latest accounts.
As lenders want to know exactly what is being reported, the SA302 form will likely be required. It declares income and profits to the taxman.
Lenders might also request Tax Year Overviews from accountants and insist that the tax due figures match up.
It is not easy to get a mortgage when you are self-employed.
Many people who have a large deposit and a business that is viable but not enough to meet the standard assessment may feel frustrated.
A mortgage broker can offer expert advice and know which lenders are most likely to lend to you. It might be worthwhile to get in touch with one.
Talk to self-employed people who might know someone who is a lender.
A broker can help you shop around. They are likely to know which lenders are more likely lend to self-employed people.
However, if you prefer to visit a bank or building society directly, make sure to get the details and any fees. Then shop around because lenders have different attitudes towards self-employed people. Some lenders may require a larger deposit than others while others won’t offer such a competitive rate.
Acceptance will mean that you’ll be offered all product options, including tracker, variable, and fixed rate mortgages. These are the types of mortgages you should be familiar with. Take a look at our guide to the different types and mortgages.
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