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How To Get A UK Mortgage Being Self-Employed In 2021?

According to the Office for National Statistics, there are more than 5 million self-employed persons in the United Kingdom (ONS). However, obtaining a mortgage as a sole proprietor is more difficult than obtaining one as an employee of a corporation.

Here’s all you need to know about it.

Is It Possible To Acquire A Mortgage If I Work For Myself?

If you work for yourself, you can acquire a mortgage. Lenders, on the other hand, want employment security and the dependability that comes with a steady paycheck.

If your revenue fluctuates from month to month, as it frequently does if you’re self-employed, lenders may be hesitant to lend to you. As a result, you’ll probably need to submit additional proof of your income in order to be approved for a mortgage.

How To Get A Mortgage As A Self-Employed Person

You’ll need the following papers to show your income if you’re looking for a self-employed mortgage:

  • For the previous two to three years, two or more years of certified accounting SA302 forms or a tax year review from HMRC
  • If you’re a contractor, show proof of impending contracts.
  • If you’re a corporate director, you’ll need proof of dividend payments or retained earnings.

You’ll also require:

  • Bank statements from the previous three to six months are required.
  • Proof of identification, such as a passport or driver’s license
  • A council tax or utility bill can be used as proof of address.

Is It Necessary To Have Your Accounts Prepared By An Accountant?

Most lenders will require that your accounts be prepared by a licensed or qualified accountant, especially if your financial circumstances are sophisticated (which means they are part of a professional body).

Using one, in any event, will only increase your chances of being approved for a mortgage.

However, while many accountants can lawfully decrease your stated income so that you pay less tax, your accounts will show a lesser profit as a result, which may impair your mortgage application affordability.

How Does The Concept Of Affordability Work?

Lenders must now thoroughly assess whether you can pay a mortgage, both now and in the future, thanks to the implementation of the Mortgage Market Review (MMR) in 2014.

They’ll “stress test” your finances as part of this evaluation to determine if you’d still be able to finance your mortgage if interest rates rose by 3% over what the lender’s mortgage agreement reverts to.

Lenders will look at both your earnings and how you spend all your money to guarantee you won’t overextend yourself.

Your bank statements will be scrutinized to see how much money you spend on things like home expenses, daycare, and commute. Lenders will also take into account how much you spend on vacations, socializing, and hobbies, as well as if you have any outstanding debts and how much they cost.

Is It True That All Lenders Seek The Same Thing?

Despite the fact that all lenders must follow the same regulations, they will not all have the same criteria.

This implies that although one lender may reject your application, another may accept it. As a result, it’s critical to double-check qualifying requirements before applying.

A mortgage broker may potentially be able to assist you.

Is It Necessary To Use A Broker?

It is not necessary to employ a mortgage broker to assist you in your mortgage search. However, especially if you are self-employed, it might assist in matching you with the best lender and offer.

Brokers have intimate knowledge of each lender’s requirements and preferences, ensuring that you don’t spend time applying for a mortgage that you won’t be approved for.

Brokers can also help you manage your application and organize the essential documentation, making the process go much more smoothly.

Many brokers do not charge their clients a fee for their services, instead of receiving a commission from mortgage lenders. Check that they are independent and have access to the whole mortgage market, not just a limited number of lenders.

How Will Your Self-Employed Mortgage Be Evaluated?

If you’re self-employed, you’ll most likely fall into one of three groups, which will influence how you’re evaluated.

  • Single traders — If you’re a sole trader, you’ll need to file a self-assessment tax return and have HMRC compute your tax. You’ll need to fill out a SA302 form, which lenders will use to figure out how much you may borrow.
  • If you’re in a partnership with someone else, lenders will look at your individual portion of the profit.
  • Limited company – lenders will consider both your salary and dividend payments when determining your affordability as a director of a limited business.

Is The Lender Interested In Gross Or Net Income?

Lenders will generally look at your net earnings over the last two to three years if you’re a solo trader or freelancer. After that, an average is calculated based on the data.

Lenders may look at your annualized day rate or an average of your earnings over the last several years if you’re a contractor.

Lenders will look at your share of net earnings or your salary and dividend payments if you’re a limited business.

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