How do I get a mortgage as a self-employed individual?

With interest rates on the rise and mortgage companies becoming more cautious as to who they lend to, the affordability criteria it is becoming harder and harder to navigate. If you are self-employed, a first time buyer, or both, it has never been more important to make sure your finances are in order.

Whether it’s in your short-term goals or your long term sights, it’s important to be prepared and know what you’ll need when the time comes.

What will I need to provide for a mortgage?

While exact requirements will vary slightly from lender to lender, the basic information anybody (employed of self-employed) can expect to be asked for will be:

  • Proof of identity

  • Utility bills for the last four months

  • Bank statements for the last six months

  • Evidence of deposit money (if not covered already provided by bank statements)

As someone who is self-employed you will be asked to provide some additional information in support of your earnings:

  • Prior three years tax return (form SA302) or a tax year overview from HMRC

  • Two years or more evidence of regular income and expense – this can be a set of accounts, ideally prepared and certified by a qualified accountant (like us!)

A lender will use this information to take an average of your earnings over the past two or three years to make sure you can afford the mortgage you are applying for. You might also be asked to provide further detail or information such as evidence of upcoming work or contracts, car or vehicle lease agreements, credit card or loan statements and further detail of costs such as travel, equipment or insurance.

Don’t panic! This doesn’t have to mean scrambling around at the last minute trying to piece together everything you need only to be disappointed that you fall short of requirements. By accounting with us you can rest assured that all your records and tax returns will be up to date and readily available in a clear format which lenders will appreciate, saving you time, hassle and worry. Also, mortgage companies LOVE it when you’ve got an accountant as the information you provide them with will carry a lot more clout.

What you can do to improve your mortgage chances and options as a self-employed individual

There are a few easy things you can do in order to improve you chances of getting a good mortgage deal as a self-employed individual, these include:

  • Get an accountant – getting an accountant not only means you don’t have to get all of the supporting information together yourself but also adds credibility and weight to your accounts.

  • Get the balance right – while no one wants to pay too much tax, minimizing your income to reduce your tax bill will also reduce the amount you will be able to borrow. It is worth keeping your future plans in mind when preparing your tax return each year. A good accountant can help you with this.

  • Save the biggest deposit you can – this will help to open up more lenders and available offers. It might bring the interest rates available to you down too as the proportion of loan to cash will be lower.

  • Start caring about your credit score – lenders will look at your credit score as a gauge of how good a borrower you are. An understanding of the factors that impact your credit score will help you maximise this. There are lots of great (free) websites which can help you do this, such as Experian and Credit Karma.

  • Speak to a broker - different lenders prefer different borrowers. While some will not bat an eyelid at a self-employed content creator others might run a mile. A good mortgage advisor should be able to tell you which to avoid and which to go for, as well as who is offering the best interest rates.

If you dream of jumping on the property ladder, or are planning your next step and need to be ready for a mortgage application then give us a shout and we can help. Drop us an email at hello@twentyaccounting.com or give us a call on 07300 410801.

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