Documents needed for self employed mortgage
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How does a Self-Employed mortgage differ from other mortgages?
Self-Employed mortgages don’t differ from mortgages for traditionally employed workers. The mortgage products are the same and work in the same way, the only thing that is slightly different from a Self-Employed applicant’s perspective, is the application process, or more specifically, how their income in their application is assessed by the lender.
Mortgage Lenders still view Self-Employed income as less stable than that of a PAYE worker, even though often, Self-Employed applicants, particularly business owners may earn a lot more than their employed counterparts.
In order to mitigate some of this perceived risk, lenders will expect Self-Employed applicants to provide two to three years of working history, rather than the three months required from an employed person. They will then calculate your average income over that extended period of time, to establish a figure that they feel is a more realistic reflection of your earning potential in the long term.
What specific documents do you need?
The type of proof that you will need to evidence your income depends on the type of Self-Employed activity you are involved in, as per the below:
Limited Company Director
Limited Company Directors will have their personal income and dividend payments considered in support of their mortgage application. Some niche lenders will accept your net retained profits in addition to your personal income, however, this is less common.
Two to three year’s worth of certified accounts, as well as your SA302 tax calculation forms are usually required as proof of income. Business bank statements may also be required in some cases.
It may be possible to secure a mortgage with as little as twelve months trading history, however, you will likely need to supply a substantial business plan with clear future profit projections. As this is only offered by a small number of lenders, the interest rates will not be as competitive as if you waited until your business is better established.
If you’re a partner and own more than 25% share in the company, lenders will consider your share of the net profits as income in support of your mortgage application. If you own less than 25%, this income cannot be used. In order to prove this income you will need to provide certified accounts for two to three years and the SA302 self assessment tax returns for the same period.
Sole Traders and Freelance workers
As a Sole Trader or Freelance worker, the Mortgage Lender bases their loan calculation on an average of your personal income from the past two to three years, depending on their criteria. Your SA302 forms for the requested tax years will provide adequate proof of your income.
If you’re a contract worker, some lenders will be willing to look at an annualised version of your day rate. You are likely to need to provide written contracts for at least twelve months into the future, to prove stability of income, however, alongside your SA302s.
How do you improve your chances of being accepted by a lender?
Preparation in advance of applying for a mortgage is a key aspect in improving your chances of obtaining a mortgage offer. Here are some recommended preparation techniques.
You can use our advice above to ensure that you have documents available ahead of time. If you don’t usually use an accountant, it’s important to ensure that any accounts that will be supporting your mortgage application are signed off by a certified accountant.
Improving your credit score will benefit Self-Employed and employed people. Try the following:
- Ensure you’re listed at your current address on the electoral roll
- Reduce any debts you have
- Utility bills and credit card payments should be timely and in full
- Stay within 50% of existing credit limits and don’t apply for more
Offering more than the minimum deposit requirement reduces some of their risk to the lender and potentially gives you access to better interest rates. A good step for Self-Employed applicants in particular.
Speak to First Step Mortgages
Here at First Step, our Mortgage Brokers can help to ensure that you only approach those lenders whose criteria you are able to meet. As well as saving you the time and frustration of failed applications, we can make sure that you have access to the most competitive deals available for your individual circumstances.
Your home may be repossessed if you do not keep up repayments on a mortgage