Self Employed Mortgages

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Getting a mortgage can be a more complicated process if you are self-employed. However, it is possible. In fact, if you know about how mortgages for the self-employed work, and the options that are available to you, your chances are much increased. Luckily, you can find this information below.

How do self-employed mortgages work? 

Some people confuse the idea of a self-employed mortgage with an old type of borrowing known as the self-certification mortgage. Unfortunately, because they were oversold, these types of mortgages are no longer available. 

Then others will tell you that, in fact, there is no such thing as a specific ‘self-employed’ mortgage. That as a self-employed person, you can expect the same mortgage options as those that in a typical salaried role. 

However, in reality, the situation isn’t quite that straight forward. This is because as a self-employed person, you are likely to face stricter assessment criteria. Especially if you choose to apply for a mortgage from a high street financial provider. 

The good news is that a high street financial provider is not the only option available to you. In fact, there is a type of lending often offered through brokers known as a contractor mortgage. This is a way of borrowing that will need less stringent criteria and historical paperwork. Yet, still provide the comparative rates and deposit amounts you would expect from a typical mortgage. 

How will the application process differ from a standard mortgage?

When applying for a contractor rather than a standard mortgage, there are some significant differences that you need to be aware of. 

The first is that self-employed people applying for a mortgage on the high street must provide two years worth of certified accounts. Indeed, the more documents and information you can provide that demonstrates you are a low-risk borrower, the better. To that end, if your per annum income is not consistent expect to also provide extra information such as new contracts and savings. 

However, if you opt for a contractor mortgage, you will need to provide only three months of income paperwork. Although, any additional evidence that you are low risk like contracts, both historical and future will improve your chances. 

Additionally, the category your business comes under will impact your mortgage application success. 

For example, if you are a sole trader, you will need to declare your income and the tax you pay using an SA302 form. This is what mortgage providers will use to make their affordability calculations. 

However, if your business comes under the category of a partnership, things are a little different. In fact, lenders will assess your specific share of the profits and base their calculations on this. 

Finally, if your self-employment comes under the banner of running a limited company, things will be different again. This is because, as a director, you will be in receipt of a salary and dividends. The good news is that lenders will take both of these into consideration when processing your mortgage application. 

How do you go about arranging a self-employed mortgage?

The first step in arranging a mortgage if you are self-employed is to identify whether you qualify for a contractor mortgage, then decide whether you will go to a high street provider, or not. In fact, many people will be better off seeking a contractor mortgage through a broker instead. 

Also, it is worth noting at this point that if you choose to investigate both options, be careful not to get a formal mortgage offer from both. The reason being that they will appear on your credit rating and so, even if you do not take the offer up, can impact your credit score. 

Once you have decided on a route, having the following will be critical to your success:

  • A good credit rating 
  • A deposit ( the larger, the better) 
  • Enough income to cover your mortgage repayments. Although how lenders assess this will differ between a standard mortgage and a contractor mortgage. With the latter often being more beneficial for self-employed people. 

Common self-employed mortgage FAQs: 

Finally, you can find the answer to some of the most common queries that self-employed people ask when applying for a mortgage, below. 

Is there such a thing as a self-employed mortgage?

No, there is no specific mortgage for self-employed people offered on the high street. However, contractor mortgages are available from brokers that are more favourable to those that are self-employed. 

As a self-employed person, will I have to provide two years worth of certified accounts when applying for a mortgage?

Yes, if you choose to apply for a mortgage on the high street. However, by opting for a contractor mortgage, you will only need to provide 3 months of accounts (plus evidence of past and future contracts). 

Can my spouse take the lead on the mortgage?

Yes. Your husband or wife can take the lead on your mortgage. In fact, if your spouse has a salaried position and you are opting for a high street mortgage, it may be a better option. Even if they don’t earn as much as you do. 

What effect has Covid-19 had on self-employed people getting a mortgage?

The Covid-19 crisis has had an impact on the availability of all financial products. In fact, when it comes to highstreet mortgages, many factors suggest it will be even more difficult for self-employed people to be successful. These include the use of manual underwriting and pre-application questionnaires. Some high street lenders are also requesting evidence of how COVID-19 has affected applicants turnover. 

Final thoughts

In theory, the self-employed can expect the same treatment from mortgage lenders on the high street as anyone else. However, the criteria used to assess them is much harder than for salaried employees. With that in mind, opting for a contractor mortgage from a broker may be the best choice for someone that is self-employed. 

Your home may be repossessed if you do not keep up repayments on your mortgage.