What Income Do Mortgage Companies Look At Self-Employed?

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What counts as Self-Employed? 

If you’re Self-Employed and 25% or more of your total annual income is gained through your Self-Employed business activities, then the vast majority of Mortgage Lenders will accept that in support of your mortgage application. You may earn income in any of the following ways:

Even high earning Self-Employed applicants will be assessed more stringently than PAYE applicants, as the potential variance in Self-Employed income can make it more difficult for lenders to establish a stable income pattern. 

Proving your income

Self-Employed borrowers will need to provide evidence of a more substantial duration of their trading history, to mitigate the risk involved with a fluctuating income stream. In most cases, lenders will request proof of income spanning two to three years, although some are happy to accept a single year of accounts.

Your trading style will influence the proof of income required, and whilst lender criterias vary, you will ordinarily need to provide the following:

Proving your income as a Sole Trader

Lenders will want to find your average net annual income, so they will need the following documents. The number of years required will depend on the lender:

  • Certified accounts
  • Tax calculations (previously known as SA302 forms)
  • HMRC tax overviews

Proving your Income as a Company Director

Your personal salary and dividends payments are what most lenders consider, however, some will also take your net business profits into account when calculating your loan. If you own 25% or more as a partner, your share of the net profits will be used.

In order to prove this income, the following documents are ordinarily required:

  • Certified accounts
  • Tax calculations
  • HMRC tax overviews
  • Business bank statements 

Proving your income as a Contractor

Your income is assessed depending on how you are paid, so proof of income will be based on your specific payment type. 

  • Freelance working contracts – you will need to provide your certified accounts and tax calculations to prove your personal income, for the duration requested by the individual lender
  • Day-rate contractors – Proof of ongoing contract availability, as well as your agreed day-rate, which some lenders will annualise to provide a salary figure
  • Umbrella company contractors will be assessed as PAYE applicants, so your payslips from the umbrella company are usually used.

Do Self-Certified Mortgages still exist?

Self-Certification mortgages (or Self-Cert mortgages)  were removed from the market in 2009, when they were banned by the Financial Conduct Authority in 2009. This type of mortgage was associated with disingenuous lending practices and financial ruin.

How do you go about getting a mortgage if you are Self-Employed?

The overwhelming majority of Mortgage Lenders now offer mortgages to Self-Employed people. Obtaining a competitive offer is no more challenging as a Self-Employed mortgage applicant than it is for anyone else, so long as you are able to prove your income and use the right lender for your circumstances.

How do I improve my chances of my mortgage application being approved?

It’s possible to improve the strength of your application if you carry out some simple preparation before applying for a mortgage. Here are some tips:

  • Ensure accounts to be used in support of your application are authorised by a certified accountant
  • Saving to offer more than the minimum deposit requirement can make your application more attractive and give you access to better rates
  • Mortgage Lenders will credit score your application, so working to improve your credit rating can help you to achieve an offer;
  • Check your addresses are correct, old financial associations are removed and  dormant accounts closed on your credit file
  • Ensure you’re on the electoral roll at your current address
  • Credit card, utility bills and similar outgoings should be paid in full and on time
  • Minimise the use of credit facility and don’t seek further borrowing

Speak to a Mortgage Broker

Speaking to one of our Mortgage Brokers, here at The Mortgage Company can also improve your chances of getting that approval. Because we specialise in Self-Employed mortgages, we can advise you which lenders accept and can maximise the potential of your income, to achieve the most competitive deal available to you.

We can also help you to prepare in advance of your application, so that you can feel confident that you will meet the lender criteria, and have the documentation read to speed up the process. 

YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE