Self Employed Mortgages Explained
It is a relatively straight forward process to get a mortgage if you have a job. A lender will base their lending decision on your salary and even if you have literally just started a job then it is possible to get a mortgage based on your expected salary (there are a few conditions to meet but nothing too onerous).
But if you are self employed rather than employed (if you get a payslip when you are paid which includes payments for tax and national insurance then you are probably employed) then you will not have a guaranteed income on which to base a lending decision. In this case lenders will base their decision based on your self assessment tax returns.
What does that mean?
If you are self employed then you must submit a tax return to HMRC each year stating how much you earned in the previous tax period and how much tax you must pay. And a prospective mortgage lender will assess your future earnings based on these tax returns.
In most instances, bank will take an average of the past two year’s returns and use that as your salary to work out your mortgage affordability level. But it is possible to find mortgages from banks that only require one year’s worth of self assessment tax returns.
This means you must have been trading for at least a year before you will be able to get a mortgage but if you have 2 years’ worth of trading history then you will have more mortgages to choose from and will likely be able to secure a better mortgage interest rate.
Is it possible for a self employed person with less than one year’s accounts to get a mortgage?
Yes. There are some instances when a self employed person with less than a year’s worth of trading might be able to get a mortgage.
If they are a fixed term contractor with a history of working within the relevent field then it is possible that a self employed person could be viewed as employed for the purposes of working out mortgage affordability.
Also, a Construction Industry Standard (CIS) contractor who receives a payslip with tax deducted at source may also be looked upon in the same way as someone who is employed.
What kind of interest rate does a self employed mortgage have?
If you are able to satisfy the lender’s lending criteria, then a self employed person should be able to get a mortgage with a comparable rate to an employed person. Which are currently extremely competitive.
How do I get a self employed mortgage?
First make sure a self employed mortgage is for you. As we have already discussed, it may be possible that you will be assessed as employed if you meet certain criteria and there is a lower burden of proof for employed applicants compared to the self employed.
Once you’re sure you are looking at the right type of mortgage, check on the various lenders websites to see how they assess self employed income and whether you meet their criteria. Run your figures through their respective affordability calculators.
Once you have found a lender and a mortgage then apply for a decision in principle. This is like a pre-application and will involve you completing a pretty lengthy application so make sure you are sitting comfortably.
If they are happy to lend to you the bank will give you a decision in principle which means that if your evidence backs up what you’ve told them they would be willing to lend to you.
Next submit the full application and send them all the evidence they require. Among the things you will have to send are:
proof of ID and address (certified by a solicitor or at the Post Office)
self assessment tax returns or payslips
If everything stacks up and the property the mortgage is to be secured on is cleared by the solicitors then you may finally get your money
If you would like any help with a self employed mortgage or anything else to do with mortgages or property, then get in touch and I will gladly give you some free advice. And head over to my about me page to learn a bit more about me and how I can help.