Applying for a mortgage as a self-employed individual can feel overwhelming, but it’s far from impossible. More lenders are open to self-employed applicants, making it easier to secure a mortgage deal. In this guide, we’ll walk you through the process, from choosing lenders to handling paperwork so you can secure the best mortgage deal as a self-employed applicant.
Can I get a mortgage if I’m self-employed?
Absolutely! Whether you’re a sole trader or working through a limited company, you can get a mortgage. Lenders typically require two years of accounts to assess your affordability, but that’s not always the case. If you’re new to self-employment, lenders such as Kensington or Aldermore cater for this group and may accept just one year of accounts or alternative proof of income like contracts or invoices.
I’ve applied for a mortgage both before and after having two years of accounts. I have found that over the years more lenders are open to people like me (I am self-employed) and the criteria to apply are becoming a bit easier.
Why you need a specialist mortgage broker
Navigating the mortgage landscape as a self-employed applicant is challenging, but a broker who specialises in self-employed mortgages can make all the difference. Here’s why:
- They know the right lenders: Brokers are familiar with lenders who offer more flexibility for self-employed applicants, saving you time and effort.
- They present your case: A good broker can present your mortgage application in the best light, addressing any concerns lenders might have.
- They save you money: Brokers can find competitive mortgage deals that you may not access directly.
If you’re looking for a trusted mortgage broker who specialises in working with self-employed applicants, I’ve compiled a list of my top recommendations. Click here to access the list.
What paperwork will you need for a self-employed mortgage?
Self-employed applicants often need to provide more documentation than salaried workers. Here’s a checklist of papers you should prepare:
- Tax returns (SA302s): Obtain these from HMRC or your accountant to show your declared income.
- Tax year overviews: A summary of your income and taxes paid.
- Bank statements: Typically from the past three-six months, covering both business and personal accounts.
- Proof of deposit: Statements showing where your deposit is coming from.
- Proof of earnings: Contracts, invoices, or other documentation to demonstrate consistent income.
- Accounts: Preferably prepared by a chartered accountant.
The more organised you are with your paperwork, the smoother the process will be. During the application, the lender might request additional documents, such as a recent credit card bill or details about your childcare costs. Be prepared to send these over quickly. I admit, the paperwork side can be a giant pain, but it’s a necessary evil in this game!
Lenders that cater to self-employed applicants
Not all lenders are created equal when it comes to self-employed applicants. Here are a few that stand out:
1. Kensington Mortgages
Kensington accommodates applicants with one year of accounts or less traditional income streams.
2. Aldermore
Specialises in complex cases and offers flexibility for self-employed borrowers. I’ve used Aldermore before.
3. Nationwide
A mutual known for its competitive rates, especially for self-employed applicants with an established track record.
4. HSBC and Halifax
These two high-street lenders require at least two years of accounts, but they provide great deals for applicants who meet their criteria.
Your broker will help identify the best lender based on your unique financial circumstances.
Overcoming common concerns when applying for a self-employed mortgage
“What if I can’t afford the payments?”
It’s natural to worry about affordability, but here’s how to ease those fears:
- Build an emergency fund: Aim for three-six months’ worth of mortgage payments in savings.
- Fix your rate: Lock in predictable payments for two-five years to avoid surprises.
- Communicate with your lender: Many lenders offer options like payment holidays if you face temporary financial challenges.
“What if my lender doesn’t accept my solicitor?”
Your solicitor must be on your lender’s panel. This ensures they meet the lender’s standards and can represent both you and the lender. Double-check this before hiring a solicitor to avoid delays and unnecessary costs.
Understanding mortgage terms for self-employed applicants
- Fixed vs. variable rates: Fixed rates provide payment stability for a set term (usually two-five years), while variable rates can fluctuate with the market.
- Term length: Standard terms are 25 years, but you can adjust this. Longer terms lower monthly payments but increase total interest paid, while shorter terms do the opposite. But remember that if you’re changing it after two or five years anyway, it’s not something to focus on.
- Remortgaging: At the end of a fixed-rate period, you’ll need to remortgage or risk rolling onto a higher standard variable rate (SVR). Staying proactive ensures you always have a competitive rate. Your broker should be in touch with you a few months before your term expires to advise you of recent rates and ask if you’d like to fix again.
Final tips for success
- Be transparent: Provide complete and accurate information to avoid delays.
- Stay organised: Keep all paperwork accessible and up-to-date.
- Work with professionals: A good broker and solicitor will make the process much smoother and less stressful.
