When you’re self -employed it can feel like you have to jump through a few more ‘hoops’ to get your mortgage.
I know this feeling well – because I have been self-employed my whole working life and have had a few mortgages in that time.
I haven’t always worked within the mortgage industry and there was a lot I didn’t know before this time. Perhaps if I had known, I would have found the process easier.
And now, because I regularly work with self-employed clients as a mortgage broker, I can fully understand the needs and processes of the lenders too – why they do what they do and what we can do to assist the outcome.
I have seen first hand both sides of the coin and I’m grateful to be in that position so I can help you prepare, understand and hopefully make what can feel like a bumpy road just that bit smoother with my industry insight.
As I say in all my mortgage-related articles, lenders vary their criteria much more than I had ever known before. This is fantastic as where one lender isn’t suitable another just might be.
It allows room for innovation and individualised suitability. However, it does also mean when offering advice, I will need to be relatively generic and just ask you to remember there may be exceptions to the guide below that a mortgage adviser can check out for you on a personal basis.
WHO qualifies as a self-employed applicant?
- Sole traders
- Limited company directors with over 20% to 25% shareholding
- Some contractors – if tax isn’t paid at source
This means, even if you’re paid a salary from your limited company, if you own over 20% to 25% shares you will be assessed as a self-employed applicant.
GET prepared in advance
Most lenders require the latest two-years’ self-employed accounts to gain an understanding of your annual earnings.
Most will review these accounts and take an average from the last two years’ profit, after expenses but before tax.
If your latest year is lower than the average they’ll take the lower amount into consideration.
Therefore, having a good grasp of what your average figure looks like will give you a better understanding of your income levels as seen through the lens of the lender.
It’s true that some lenders can take the latest figures instead of an average, but this will give you less choice of lenders and products.
Its standard to ask for three months’ business bank statements as well as personal ones. This is so the lender can assess whether the flow of income is still in line with what’s been declared.
BE on top of your tax return
Leaving your tax return to the last-minute before deadline may result in your accounts being too ‘old’ to be valid. Most lenders require the latest set of accounts to be no older than 18months.
So, if your last set ended on 5 April 2023, for example, as of 5 October 2024 they are too old. Yet the deadline to submit to HMRC online isn’t until January 2025. It’s an easy trap to fall into.
My advice is to organise your return as soon as each tax year ends, this will ensure all your figures are always up to date and valid for lenders to use.
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TIP – Hire a qualified accountant to verify income and help you prepare and locate relevant paperwork. Do discuss your mortgage plans with your accountant.
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HELP the lender understand your business
The biggest revelation for me, upon becoming a mortgage professional, was that lenders actually do want to lend to you – even to self-employed applicants.
That sounds obvious – but it doesn’t always feel that way.
In fact, they want and need to understand your business, your set-up and how things work. The more you can offer to help them understand your position, the more secure they feel in lending to you.
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TIP – use a mortgage adviser also known as a mortgage broker. A mortgage broker will have access to more lenders and products across the market and can therefore navigate the market and lenders criteria to find you the most suitable fit.
There are times, when cases need some extra ‘rationale’ and explanation behind it for the underwriter. A broker can be skilled at offering this in the most effective and evidenced way.
I suggest chatting through your situation with an advisor ahead of time for the most seamless approach.
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I do hope this has helped and offered you some insight.
Having your own business is personal and everything about it feels personal, I understand that from my own experience too. May you feel empowered as you proceed in business and with your mortgage needs now and in the future.
Gemma Bennett is senior mortgage adviser at The Mortgage Mum
You can connect with Gemma via email Gemma@themortgagemum.co.uk or at her website, here.
Instagram: gemmabennett_themortgagemum.co.uk
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