How to... get a mortgage when you're self employed

Self Employed Mortgage
16 May 2016

Getting a mortgage when you're self-employed in the UK, is notoriously difficult. However, it isn't impossible and there are ways of getting your hands on some deeds, according to the financial regulator, the Financial Conduct Authority.

A report from the FCA says: "We did not find evidence that the rules have prevented firms lending responsibly across particular groups, for example older borrowers and the self-employed."

A typical self-employed person has to produce two or three years worth of paperwork, showing their earnings, and some lenders will want to look at your accounts and sometimes, tax returns.

If you have these to hand, it'll help you out.

Of course, self-employed people have earnings that fluctuate more than someone in a steady 9-to-5. If you're paying out in rent, when you don't want to, this is of little consolation.

So what do to? Well, here's some good tips for assuring a lender that you can afford your mortgage.

Get an SA302 form

This form is the income you've declared to HMRC. People giving out mortgages will want to know how much you're making, so this form is a good, official way of showing them.

Call the tax office on 0300 200 3300 and request one. Or, if you have an accountant, get them to do it for you.

If you're doing it yourself, make sure you have your National Insurance number to hand, as well as your UTR numbers (which is your Unique Tax Reference, which is 10 digits long, and can be found on all your returns and correspondence).

Have A Large Deposit

If you save up for a larger deposit, that'll work in your favour. For the self-employed, that's going to have to be in the region of 20% or upward. Get a savings account and start throwing money at it, basically.

Be Good With Your Money

Lenders want to know that they're dealing with someone who is financially responsible, and one way of doing that is to show them in cold, hard numbers. If you have a spreadsheet of your incomings and outgoings, you can show mortgage lenders how much you're spending on household bills, and the like.

Get A Good Credit Rating

If you have debts, pay them off. If you stay on top of these and don't incur a load of late charges, that'll help. This includes your mobile phone bill, paying off your credit cards, and not applying for a load of loans.

Another thing that helps your credit rating is being on the electoral register at your current address

Basically, your credit rating is what lenders will use to predict what you'll be like in the future, so if you've been responsible in the past, they'll look more favourably on you.

Use A Mortgage Advisor

If you apply to a lender through a qualified mortgage adviser, that's going to help you no end.

There's a decent round-up of mortgage advisers over at Which!!!, and you can see them here.

Make A Call On What You Declare

This is a tricky decision - you're going to have to show a lender that you're earning a decent amount of money. A lot of people who are self-employed like to minimise their earnings so they don't have to pay as much tax. However, if you increase the amount you earn before getting a mortgage, it'll look better to a future lender.

Obviously, you'll have to pay more tax, but it'll look good to a lender while you're trying to get a mortgage. Once you've got in the house, you can start minimising your earnings again. Think tactically.

Shop Around

Some lenders are more lenient when it comes to the self-employed than others - HSBC, Yorkshire Building Society, the Post Office, Chelsea Building Society, and Halifax are worth looking at.

You'll have to make your own call on which you end up going for, because obviously, your circumstances are so variable that there's no catch-all answer we can give you.

TOPICS:   How To Guides   Mortgages

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