In the UK, obtaining a mortgage as a self-employed person might be difficult, particularly if you plan to buy a house soon. It’s critical to comprehend the procedures required to improve your chances of obtaining a self-employed mortgage in 2023, given the shifting economic environment in 2021 and the upcoming changes to the mortgage market in the UK.
In this post, we’ll examine the essential actions and recommended procedures that will raise your chances of obtaining a self-employed mortgage in 2023.
Getting a mortgage when self-employed
You’ve probably observed that UK high-street mortgage lenders have higher lending requirements for self-employed mortgage applications, whether you’re a company director or a sole proprietor.
However, there are lenders out there who, until 2023, are providing excellent mortgages to self-employed people who take into account the specifics of self-employed income and the possibilities of your business.
What Self-Employment Qualifies For Mortgage Eligibility?
- Sole Trader: You work for yourself and keep all the profits from your business—you may be eligible for a self-employed mortgage. You must provide an SA302 to your mortgage lender as proof of your income since you pay income tax.
- Contractor: Like a lone proprietor, you probably have multiple clients and possibly longer contracts. If so, demonstrating future agreements and commitments may benefit your mortgage application.
- Partnership: If you own a business with another shareholder, be sure you can demonstrate your ownership of the company and your portion of the profits to your mortgage provider.
- Limited Company: If you’ve formed a limited company, your compensation will probably be a combination of salary and dividends. Make sure your lender considers all your sources of income and any remaining earnings in your company. – Learn more about Mortgages for Limited Company Directors
Recommendations For Obtaining A Self-Employed Mortgage
A self-employed mortgage is possible. However, it would be beneficial if you checked off each requirement:
Establish Your Income
Mortgage lenders accept only specified HMRC tax documents as evidence of your self-employment income.
The main records are:
- SA302 (Tax Calculation)
- Overview of your tax year
Prepare these in advance and for the past two years at the very least (the more, the better). However, we could still get you a mortgage even if you have one year’s worth of accounts.
If you filed tax returns for the relevant years, you can download these from HMRC’s website or request that they be mailed to you.
Read our other guides to learn more about mortgage income types.
What more might lenders demand from you?
Some lenders will ask you for details about upcoming contracts or prospects as evidence of your upcoming work so they can assess your likelihood of making your mortgage payments on time.
The more you can demonstrate the durability of your company, the better. This can have an impact on your borrowing capacity and interest rate.
Hire A CPA
Some mortgage lenders will only consider your application if your income has been certified by a professional accountant.
A bank will view your predicted income and borrowing capacity more favourably if it gets this certification.
Remember that the self-employment income structure that is most tax-efficient may not always be the ideal one on which to base your mortgage calculation.
It’s sometimes the most tax-efficient strategy to get dividends as your main source of income if you own a limited company.
Considering how much cash you keep in your company would be beneficial. Some lenders include this information in their mortgage calculators as capital that can be used to generate revenue.
Others, however, outright disqualify it from your application. Increasing income or looking for another lender can be worthwhile in this situation.
Have A Better Credit Score
You are more likely to be approved for a self-employed mortgage, and the better your credit rating.
While your credit report won’t guarantee that your mortgage application will be successful, you should address any issues that may appear there.
Here are some helpful hints for doing so:
- Utilise credit cards and settle them on time and in full every month.
- Use direct debit to pay your bills.
- Clean up previous bank accounts.
- Do not use your overdraft. – Does having an overdraft affect getting a mortgage?
- If you are presently renting, utilise the Rental Exchange Initiative.
Settle A Large Deposit
This one should go without saying, but the more you put down, the less your mortgage provider needs to loan you. You are more likely to get accepted and receive better mortgage rates the better your loan-to-value ratio (LTV) is.
And this could make a difference if you can move your deposit up into the next percentage band.
What the average self-employed person in the UK experienced getting a mortgage
This graph provides a snapshot of the experiences faced by self-employed individuals in the UK when applying for mortgages. It reveals how lending policies have hindered their progress and highlights key data points to gain an extensive comprehension of this process. With this visual, you can widen your understanding of exactly what it takes for those who are self-employed to a mortgage in the UK and why it is so important to use a mortgage broker experienced mortgages for the self-employed.
You can feel confident that you’re getting an appropriate mortgage even with regular mortgage applications by having a mortgage adviser search the entire market for the finest offers. Every application is unique. Thus, you can’t choose the best one if you don’t know all your possibilities. We can choose for you because we are qualified and have the lender market expertise.
YesCanDo Money offers advice with a fee-free support service that helps you access the best mortgage rates and deals. We are an FCA-approved fee free mortgage broker with a team of CeMAP-qualified independent mortgage and protection advisers. Our mortgage advisers support the whole of the UK. Get a mortgage today!