There are now a larger number of self-employed individuals than ever before – more than 5 million in the UK – and the amount of independent workers could soon over take those employed in the public sector. No matter how successful or financially secure you may be, it can still be very difficult to secure a mortgage if you have your own business.
Although hard to secure, it is not impossible to get a mortgage if you are self-employed. The key is preparing in advance.
Does Business Set-Up Affect Your Application?
Businesses fall into three main structural categories: sole traders, partnerships and limited companies. Which of the three your business falls into can have a big impact on how lenders view the safety of your income.
Sole Traders – When applying for a mortgage as a sole trader, your lender will usually request proof of two years' worth of income. If you complete your own tax self assessment, you may need to provide your total income earned and tax paid via an SA302 form.
Partnerships – Similarly to sole traders, when you own a business with someone else, you will need to prove your portion of taxable income. However, make sure to keep accurate and up-to-date accounts, as you need to be able to show how you split net profits.
Limited Companies – As the director of a limited company, your income probably consists of a basic salary and additional dividend payments. Lenders usually consider both components when assessing a mortgage application, though they may be judged differently based on ownership share.
How Will Your Mortgage be Calculated?
The way a lender calculates rates and amounts varies wildly. While one lender may base your borrowing limit over several years worth of income, another may ask you to include projections of future earnings, but others may calculate using earnings over the last twelve months.
To get the best mortgage, speak to different lenders, shop around and make sure to look into companies such as Saffron Building Society, who offer mortgages catered to the self-employed.
How Can You Maximise Your Chances?
- Make sure you have your SA302 tax form ready as they can take time to arrive in the post
- Increase your deposit to decrease your borrowing amount
- Lenders want to know that you are stable, so aim to increase profits on a yearly basis
- Delay altering the structure of your business as this could hurt your application
When you are self employed you enjoy the benefits of being your own boss. You get to run your own business and determine your own destiny. But when applying for a mortgage you are in the hands of someone else and they are going to decide if you get one or not. As stated before the key is to prepare in advance.