Mortgages

Securing mortgages for the self-employed

A good mortgage deal when you are self-employed can be hard work to secure (and when you are self-employed you know the true meaning of hard work!). Active will do that legwork for you, whilst you focus on running your own business.

Entrepreneurs and self-employed business owners are what keep this country running and our economy growing. Active do not want you to be distracted from running your business: stressing and struggling to secure a mortgage deal that reflects the work you do and the income you generate.

Let us guide you through the process

Our preparation tips for successfully applying for a mortgage if you are self-employed include:

Step 1

Prepare your certified earning reports for as far back as possible, at least two years but some lenders may ask for 5 years. So it’s best to have as many as you can. You need to show that your business is profitable.

Step 2

HMRC tax reports – for at least the last two years

Step 3

Contracts – you need to prove that your earnings will continue. Remember you are proving to a lender that your business is secure, and they can be confident in your ability to pay back the mortgage. This could potentially be more important if your business has had a slower year recently.

Step 4

Use a chartered accountant to sign off your accounts; a mortgage lender will look more favourably if you do.

Step 5

Check on your credit score and look at improving it before the application. This can be done in a number of ways: ensuring you are paying off as much credit card debt as possible; you are on the electoral roll; and paying your bills on time.

Self Employed Mortgages – Avoid the confusion

Being self-employed brings many rewards in life but not when it comes to buying a home, and the confusion surrounding self-employed mortgages effects thousands of applicants each year.While there are a handful of additional obstacles to consider along the path to success, it is usually still possible to reach the dream destination of getting a mortgage. Here’s all you need to know.

The good news is that most banks and mortgage lenders will allow self-employed workers to borrow money. This means that, despite the perceived lack of options, you should have no problems finding a lender – as long as you meet the criteria. Remember, though, that all lenders have their unique policies. So, just because one bank doesn’t offer self-employed mortgages, it doesn’t mean you should give up.

Lenders need to verify your earnings. This is very easy when applying for a mortgage under traditional employment but can be a little more difficult when you’re self-employed. Most lenders will want to see earnings reports for at least 2 years, and potentially up to 5 years.

Your tax accounts are the best way to prove earnings, but it’s important to keep financial records too. On a separate note, lenders will want to know that the earnings are set to continue, which is why contracts for future employment – as well as similar documents – can work wonders.

As a rule of thumb, most lenders will lend up to a maximum 5 times your annual earnings – although many set their limits to 4 or 4.5 times the earnings.

The earnings are ordinarily calculated by taking the mean average from the last 2-3 years, as per the figures on your financial records. Meanwhile, those that are making joint applications with their spouse can add the earnings to their partner’s before adding the multiplier.

Ever since the financial crisis of 2008/2009, mortgage lenders will no longer accept self-certification to approve a mortgage for a self-employed applicant. Legally, you now need to prove your earnings, ensuring that you are going to be able to afford to pay back the loan, and that the lender has made a responsible decision giving you a mortgage.

In the majority of cases, lenders request at least three years of accounts and for many businesses that is likely to be easy enough to achieve. However, if you have not been trading for very long and only have one year of accounts, a mortgage may be trickier to secure. If you have two years of accounts, please see our specific page for more details.

As a self-employed business owner applying for a mortgage, you will need to prove your earnings. However, if you have only just started trading and only have one year of accounts, you are going to need to prove that your business is viable, and your income is going to be stable enough to afford to pay the mortgage back.

Providing contracts for future work, a detailed business plan and a projection report from a chartered accountant are types of typically requested evidence.
Many high street banks will not provide a mortgage for a self-employed applicant with only one year of accounts, however, there are specialist lenders available who are willing to work with you and your circumstances. Finding those lenders and securing a decent mortgage deal is no easy mission; you should seek the assistance of an expert mortgage adviser who has helped copious numbers of clients in similar situations.

As a self-employed business owner applying for a mortgage, you will need to prove your earnings with the SA302 form or full accounts. If you have not been trading long or have recently had a structural change, you may need to also prove that your business is viable, and that your income is going to be stable enough to afford to pay back the mortgage.

Providing contracts for future work, a detailed business plan and a projection report from a chartered accountant are types of typically requested evidence.
Some high street banks will provide a mortgage for a self-employed applicant with only two years of accounts, however, there are also specialist lenders available who have less restrictions than high street lenders who specialise in self-employed mortgage applicants.

Finding those specialist lenders and securing a decent mortgage deal is no easy mission. You should seek the assistance of an expert mortgage adviser: someone who has helped copious numbers of clients in similar situations.

A CIS mortgage is a product offered specifically to subcontractors who are part of the Construction Industry Scheme (CIS). Often, a contractor with a CIS mortgage can borrow more than a typical Self-Employed worker.

That’s because with a Construction Industry Scheme mortgage, a lender bases your mortgage loan amount on your gross income – that is, before you pay tax and national insurance. This usually means a higher value loan and sometimes, more favourable mortgage rates.
It’s a positive option if you work for yourself, as many Self-Employed people can sometimes find it challenging to get a mortgage product that meets their needs exactly.

CIS mortgages are very competitive because lenders recognise that so many contractors in the construction industry generate a steady income and run successful businesses.
You’re eligible if you run your own business and have signed up to the Construction Industry Scheme.

You will need to meet various criteria to qualify, however. Usually you need at least a 5% deposit, but it’s possible to get a CIS mortgage if have been Self-Employed for less than a year, and to have worked in the UK for less than three years.

It is commonplace for directors to pay themselves a salary that is below the next tax threshold, retain more profit in their businesses and pay themselves a large dividend. Tax on dividends is lower than on income, so it makes sense for directors to do so, to maximise their income levels.

However, many high street banks will only consider the applicant’s personal salary income, which can be significantly lower than their real take-home amount. This, therefore, limits the amount the bank is willing to lend you, despite being the director of a (hopefully) profitable business.
Whether you are employed or self-employed, mortgage lenders need you to prove your income.

This is relatively straightforward as an employed worker as you have a contracted salary amount, proved by your regular monthly payslips. If your payslips do not reflect your whole income as a director of a business, i.e. your dividend payments are not shown, then a high street bank may consider you to be a higher risk borrower. This could lead to non-acceptance or a less ideal interest rate.

Securing a good mortgage deal when you are a sole trader or part of a partnership can be particularly difficult, but it certainly isn’t impossible.
Did you know that 76% of private sector businesses do not employ anyone aside from the owner(s)? 56% of these are sole traders, and 20% in partnerships.

This is a huge number of people and business owners that are keeping this country running and our economy growing. Active do not want you to be distracted from running your business; stressing and struggling to secure a mortgage deal that reflects the work you do and the income you generate.

What our clients say

5/5

There are no special self-employed mortgage rates available from lenders, instead it is about being able to obtain a mortgage deal, without the security of an employer confirming your income.

Use our self-employed mortgage calculator today to see how much you could borrow and what type of mortgage rate you might be able to get.

There are more steps involved in securing a mortgage when you are self-employed, but it is not impossible: a specialist self-employed mortgage adviser can take the task on for you.

Are you wondering how to get a mortgage when you are self-employed? The answer is simple: ask Active. Our expert mortgage advisers help business owners like you every day, to find the mortgage deal that you deserve. 

Self-employed mortgage lending is our speciality, and we have experts that focus exclusively on finding top notch mortgages for our self-employed clients. So, you know you are in safe hands.

Book a call with one of our team to talk about your requirements.

Book a call with one of our team to talk about your requirements.