How can you secure a mortgage when you’re self-employed?

There are many upsides to running your own business – from the flexibility and autonomy it gives you, to the improved work-life balance and potential for higher earnings.

But that there are some drawbacks to self-employment, particularly when looking to secure finance for professional or personal reasons.

The prime example of this being if you are looking to arrange a mortgage as a business owner – you may need to jump through many more hoops than someone who is a contracted employee and face tighter eligibility criteria.

 

When are you considered self employed by a lender?

Lenders will class you as self-employed if you own 20%-25% or more of a business that provides the majority of your income. The three main types are:

• Sole trader – You’re the only person who owns and controls your business. You’re entitled to keep all profits after tax, but you’re also personally liable for all losses.
• Contractor or freelancer – You provide your services or products to a client on a contract basis, for a set amount of time or a specific project.
• Company director – You’re legally responsible for running the company, which is a separate entity. Your personal income is separate from the business – you pay yourself a basic salary, topped up with dividend payments. As part of this, you’re required to maintain accounts and records, pay corporation tax and inform shareholders if you might benefit from a transaction.

 

How does the mortgage process differ for self-employed?

With the mortgage affordability criteria stricter than ever,  all applicants must clearly prove their eligibility through income and outgoings. An employed person will need to provide at least three months of payslips as evidence of their income.

But this can be trickier to prove when you are self-employed due to the unpredictability of business and the irregularity of income.

Therefore, as a self-employed professional, you must be able to supply at least two to three years of accounts that have been certified by an accountant. If you have been trading for less than two years, proof of upcoming work will also be needed.

Lenders will look at your net profit if you’re a sole trader and your share of net profit or salary and dividends if you’re a company director, while contractors and freelancers should expect lenders to look at average income over the last few years.

 

What is the best approach to secure a mortgage?

As most mainstream lenders such as your high street bank are quite risk averse when it comes to mortgages, you may need to think about more niche products – and this is where finding a specialist mortgage broker can really help.

Not only will they have access to a wide range of mortgage lenders, but they will already know the lenders and their different lending criteria. The brokers can then use their expertise to match you with the best mortgage provider to suit your circumstances and needs, which will not only secure you the best rate but also reduce your chances of being rejected and face numerous failed credit applications.

To add to this, as a business owner, it’s likely that you already struggle for time, so finding a skilled mortgage specialist should make the process as efficient as possible for you.

While there is a cost to using a professional mortgage broker, they could save you far more in the long run – both in time and money.

 

Other handy tips for securing a self-employed mortgage

• Improve your credit score : Sometimes simple oversights can drag down your credit rating, including not being on the electoral roll at your current address, or old credit accounts still being open. You can check your credit score easily online with companies such as Experian and ClearScore.
• Save up a large deposit: if you can save more than 5%, you’ll benefit from cheaper monthly repayments and increase your chances of being accepted, as lenders will see you as being more likely to afford repayments.
• Hire an Accountant : using a professional accountant to prepare and certify your finances could lead to lenders trusting your income details more
• Be prepared : having all your accounts and files in order will improve your chances of securing a mortgage as a self-employed person as you’ll need to provide more paperwork than an employed person to meet the stringent affordability criteria set by lenders.

 

Seeking professional advice

At Mother Goose Mortgages, we have worked with many self-employed clients. With our wealth of knowledge and experience we have secured borrowing and mortgages, even in the most complicated situations. We understand the market and the specific requirements of each lender.

As a member of one of the UK’s largest award-winning mortgage networks, we can offer you a comprehensive range of mortgages from across the market, in addition to exclusive mortgages not available from high street banks and building societies.

Talk to us today on 01892 862534 to see how we can help you.