Mortgage blog: What to do to get a mortgage if you’re self-employed

Posted 27 August 2014

Self-employment at the UK has reached its highest level since records began with 15% of the workforce now working from themselves, up from just 8.7% in 1975.

New figures from the Office for National Statistics have revealed that there are 4.6m people working for themselves in the UK, the highest level since records began nearly forty years ago. And, of the 1.1m increase in the total number of workers in the UK between the first quarter of 2008 and the second quarter of 2014, 732,000 (just over two-thirds) were self-employed.

While being your own boss offers many benefits, in recent years it has been harder to get a mortgage if you work for yourself.

Speak to lenders or a broker and get an agreement in principle

Over the last few years it has become harder to get a mortgage. And, if you're self-employed, you may find it particularly challenging compared to the pre-credit crunch days.

In the past, many self-employed people used ‘self-certification' mortgages to borrow the money they needed to buy a home. However, changes to affordability and underwriting rules this year have seen self-cert deals disappear and lenders will now want to see proof of your income and check that you can afford your repayments.

Keith Osborne, editor of Whathouse.co.uk, says: "Before you start looking for a new home it can pay to speak to a lender or broker to establish what you can borrow. Underwriting rules vary between lenders and some banks and building societies are more comfortable with lending to self-employed applicants than others.

"You will also be able to establish exactly what paperwork and documents a lender will need in order to agree your mortgage. This gives you time to accumulate the bank statements and accounts that you will need to provide to a lender," he adds.

More advice on your self-employed mortgage application

Since the mortgage rules changed earlier this year, most lenders now need to see proof of your income for the last three years.

When you speak to a lender it helps if you take as much evidence of your earnings as you can. This may include accounts from the previous tax year plus forecasts and estimates for the current tax year. If you can provide lots of evidence of your earnings it will increase your chances of getting the loan that you need.

Bear in mind that a lender may not use the most recent year's earnings as a basis for your mortgage. Some will take an average of the last three years and this could mean that your loan limit may be lower than you expect.

If you have recently become self-employed then you may also face a challenge. If you have been working for yourself for less than 18-24 months then you may have to wait until you have a longer track record of earnings before a lender will even consider your application.

Click here to find out more about how Whathouse.co.uk can help you find the right mortgage.

 

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