There’s a slight misconception amongst the general public that getting a mortgage when you are self employed is much harder than those who are employed, PAYE. It is true that you may have to jump through a few more hoops but as long as you have the right evidence of your income, it is definitely something you should consider!
Some banks and building societies do have stricter rules around self employed individuals so if you’ve tried your bank with no luck – don’t give up hope just yet. There are specialist lenders who deal primarily with the self employed and they can have a different approach to lenders that you may find on the high street (that’s if your local high street still have branches). These lenders have different criteria and tend to asses each case on its own merits.
The way the lenders will calculate your income vary slightly depending on which type of self employed person you are;
Sole trader – lenders will base your income shown on your tax calculations. Most lenders will use an average of the latest 2 years however we can look to use just the latest year’s income if specifically needed.
Limited Company – Lenders will take both your salary and dividends that have been drawn. Some lenders are able to use your salary and company’s net profits, should this be more beneficial to you.
Usually lenders will want to see a minimum of 2 years trading as self employed, although there are some lenders who can consider as little as 1 year. You need to make sure your accounts are filed and up to date as most lenders will only accept accounts no older than 18 months old.
When lenders are assessing your affordability, essentially they are weighing up the risk of lending money to you.
Having a larger deposit can help reduce the risk and can mitigate concerns they may have about the sustainability of your income.
Remember, you will need to evidence where your deposit has come from whether it be from savings, equity or by way of a gifted deposit from a friend/family member.
A mortgage broker who knows lenders’ criteria inside out will be worth their weight in gold when it comes to having a mortgage approved. They’ll be able to complete the application for you, tailoring your needs and circumstances to find the perfect lender for you.
If you are self employed and would like some guidance and advice on getting a mortgage, please feel free to contact us.
