Contrary to what you might think, being self employed doesn’t prevent you from finding a mortgage. It can make things more complicated, however, because your income may vary month by month and year by year. Lenders like to see consistency over a few years, so if you can demonstrate that, you’re off to a good start.
If you’ve only recently – with the last year or two – become self employed, then you might find things a bit tougher. Some lenders won’t consider you until you have at least three years’ worth of income from self-employment. If you’re in this position and you can’t hang on for another year or so, you need to find lenders who are more flexible and open to your circumstances.
Talking to specialist lenders saves time and frustration
It’s important for you to head straight to specialist lenders and brokers because not only do they have access to a wider range of products than your average high street lender, but they have more flexible lending criteria.
One pitfall for self-employed people looking for mortgages is that they’re so delighted to get an offer from a high street lender that they leap at it without looking for better deals.
Specialist lenders still make you jump through hoops
Any lender, even one of the more open-minded ones, will still need all of your financial information. You’ll have to provide your tax return overviews, for a start, not just your payslips as you would if you were employed. This is where brokers come in handy because you only need to give them the information once, rather than submitting it to several different lenders. Furthermore, the broker will have a good idea as to which lenders are better for you.
Your prospective lender will use several years’ worth of self-assessment tax calculations to average out your income to work out what they can lend you. If you only have a couple of years’ records then you may face higher interest rates or a lower home loan offer. If you can hang on until you have another self-assessment overview it may be worth it for lower interest rates or higher loan amounts, but as we all know, life can sometimes come at you fast!
Applying for mortgages as the director of a limited company
If you’re a director or a partner then you’ll also need to submit your company financial summaries, including any dividend payments.
In some cases, lenders might ask to see the contractual arrangements your company has with clients as this shows how much you can expect to earn over the next few years.
Freelancers don’t usually need to produce documents like these, but IR35 contractors might need to show present and future working expectations.
Don’t forget joint applications…
Lots of self-employed people are married to or partnered with employed people and more lenders are prepared to welcome joint applications from people like this. You’ll still need to demonstrate your self-employed income and you’ll both need to have a strong credit score, but this combination can expand the range of products available to you.
