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The term ‘Self-employed’ covers many kinds of situations, from Sole Traders to Contractors and those in company Partnerships, and different businesses will have different ways of distributing dividends and/or profits. Not everyone easily understands scenarios like retained profits, dividends and many others that we look at when considering your mortgage – our specialist Mortgage Advisers will ensure the maximum available income from the company accounts is considered, and will assess each individual self-employed mortgage on its own merit, whatever the situation.
Self-employed Mortgages Information
What are Self-employed Mortgages?
You may be relieved and surprised to know that there are no such things as specific ‘Self-employed Mortgages’. All that changes is the approach to the risk taken by the lenders in their assessments.
Theoretically, all mortgage applicants with a decent credit score, whatever their employment status–employed or self-employed–should be able to access the same range of mortgage options and rates.
What do I need to get a self-employed mortgage?
Lenders generally base their income assessment for those that are self-employed on historical earnings rather than the amount you are currently earning right now. They will typically consider the average of your last two or three years’ income as shown by your SA302 Self Assessment tax calculation documents (see below for more information on SA302s and how to get them), or your full verified accounts.
We have found that one size definitely does not fit all in our dealings across the many different modes of self-employment, with some lenders being more willing or able to help than others when considering applications from those who are self-employed. In our experience, it is possible to obtain a mortgage for a self-employed person in a variety of circumstances by helping you find a lender whose underwriting criteria can accommodate your situation. One example is when only one year’s accounts are available, but other instances when we can be an effective mortgage broker for self-employed applicants are:
- Calculations based on retained profit
- Working with accountant’s certificates
- Assessments made using only the latest year’s figures
- Understanding umbrella companies and freelancers
- Contractors where no accounts are required
Getting a Self-employed Mortgage
In recent years, mortgage lenders across the board have been obliged to apply more stringent criteria to mortgage underwriting thanks to changes in the mortgage lending market and more thorough mortgage regulations. Most take a more cautious and risk-averse approach when assessing the affordability of a mortgage for the applicant. This process can lead to a lot of frustration for many self-employed people – including sole traders, limited company directors and those in partnerships – when seeking a mortgage.
As a specialist mortgage broker for the self-employed, our experts can help you find the most suitable self-employed mortgage on the market to meet your specific circumstances and requirements. Our significant experience in acting as mortgage brokers for self-employed applicants means we have a deep knowledge and understanding of how all the different lenders – from high-street banks and building societies to smaller, specialist mortgage lenders – make their assessments, and which will work better for you.
Self-employed Mortgages without proof of income
Mortgage companies that advertise self-employed people will not need to supply proof of income are in fact playing a blind. In reality, when a mortgage application is submitted, a lender will always require proof of income, as it is one of the key factors in assessing the mortgage’s affordability for the applicant, and they may verify income with HMRC instead of asking you directly to supply it.
This is a fairly recent development, and means that the self-employed applicant might not need to go through an onerous process of proof, but nevertheless, income still must be verified and documented. This move by the lenders towards verifying directly with HMRC is more of a practical move to save them time in the mortgage application process rather than asking you for the information, but unfortunately it does not mean they are really offering mortgages without proof of income, and as mortgage brokers we are still responsible for verifying and documenting proof of income before we submit the application to the lender.
Self Certified Mortgages
Sadly, these are no longer available in the UK. Initially rolled out as a solution to make the process smoother and access to mortgages easier for self-employed people with complex income sources looking to apply for a mortgage. Self-certifying your income for the purposes of an affordability assessment was a big success.
However, self-certification by self-employed, and later also employed people with complex incomes, was taken up by far more people than anticipated. After running for a number of years, the mortgage regulator judged that the risk of those with complex income scenarios defaulting on their mortgages far outweighed the benefits of enabling access, and so they were taken off the table.
What is an SA302?
The SA302 form is your Self Assessment tax calculation, sent to you by HM Revenue & Customs. To verify a self-employed mortgage applicant’s income, many mortgage lenders will ask for between one and three years’ worth of full accounts, but accepting SA302 forms instead is now becoming increasingly common.
Some may ask for the original forms from by HMRC, but SA302s printed at home or by an accountant (accompanied by the corresponding tax year overview) are now accepted by over 50 lenders. The SA302 provides the documentary evidence of your declared income for that tax year that the lenders need in compliance with the Financial Conduct Authority’s (FCA) affordability rules.
The SA302 gives a summary of your income information as submitted to HMRC in your annual tax return, and shows how much income tax and National Insurance contributions are due for that tax year. The summary gives a breakdown of all the sources of income declared in your return, including income from self-employment or limited company dividends, partnerships and interest, as well as the applicable tax rules and amounts due from each stream.
You will be able to access up to four years’ worth of SA302s and tax year summaries by either downloading them from the HMRC website and printing them off yourself if you submit your return using their online Self Assessment service, or via your commercial software if you or your accountant use that method to submit your returns.
You will need to request original SA302s from HMRC if you do not have access to a printer, or if you are applying to a lender who will not accept self-printed forms, or also if you submit your tax returns by post. To do this, you can contact the Self Assessment helpline on 0300 200 3310, quoting your N.I. number and Unique Taxpayer Reference (UTR), or you can write to: Self Assessment, HM Revenue & Customs, BX9 1AS. You should allow up to two weeks for the requested documents to arrive after HMRC received your request.
Can I use dividend income to get a mortgage?
In general, if you take a regular salary from your own business plus dividends, then lenders will consider the combined amount for the purposes of a mortgage calculation. However, some lenders don’t work this way, and may look at your business’s net profit instead.
Complications only arise if the combined salary and dividends drawn are greater than your business’s net profit, but the best course of action is to speak to one of our advisors who can make sure your figures are correct and match you with the most suitable mortgage lender.
Self-employed Mortgages using last year's accounts
Nearly every lender you deal with will take a different approach towards calculating a self-employed individual’s annual income, but it has been traditional to take the previous three years’ accounts and use the average net profit from over those years to come to a figure.
However, there are many instances where someone’s business might have shown a dramatic increase in profits in the last year–either due to growth after an initial start-up, acquisitions, mergers or a run of successful tendering, etc.–and if it can be shown that this was not a one-off, and a similar income can be expected for forthcoming years, then many mortgage lenders will consider a deal based on this figure rather than an average.
Can I get a Self-employed Mortgage with one year's accounts?
You are now able to do this. Traditionally, mortgage lenders considered at least three years’ worth of business accounts and took an average across those for a figure for your annual income. However, in more recent years, things have changed, if you can show that one year’s accounts will be a reliable indicator of ongoing income, then many mortgage lenders will now make self-employed mortgages available.
Getting a Mortgage with two year's accounts
As mentioned, most mortgage lenders have usually been known to request business accounts from at least the last three years, but fortunately, things have changed recently. You are now able to get an application for a mortgage considered with two years’ accounts, where the average profit is taken into account across those years. Mortgage lenders are also likely to be more accommodating if you have a larger deposit or equity value.
Wondering what might be the best way forward for a self-employed mortgage? Our specialist advisers will be able to offer you sound advice to suit your particular circumstances.
Self-employed Mortgage lenders
In truth, there is no such thing as a ‘self-employed mortgage’–we are dealing with the same kinds of lenders and mortgage products available to people in employment. The only difference arises with the variety of mortgage lenders who are more open to dealing with self-employed people–every mortgage lender has their own criteria for assessing their risks, some more stringent than others, based on the applicant’s personal or business accounts.
With this variation between lenders, it’s best for you to contact a specialist mortgage advisor–they will have a complete understanding of the differences between them and recommend the best mortgage product to suit your circumstances.
Self-employed Mortgage broker
Not all mortgage brokers are able to offer the best advice to self-employed people, but the team at The Mortgage Centres have a huge level of experience in dealing with many niche areas of the mortgage market, including self-employed applicants, and understand the intricacies of our self-employed clients’ lives. We know that every business will have a different trading strategy, and take this into account in our assessments, even using just one year’s accounts if that can be shown to be truly indicative of future income.
It’s important to make a proper assessment of your circumstances and to present your income and assets in such a way as to be most favourable to a potential mortgage lender. In the long term, getting you the right lender and the right mortgage product could make a difference of many thousands of pounds–either in the amount you can borrow, or the sums you will repay. Only a specialist mortgage broker for the self-employed will be able to help you in this way.
Frequently asked questions...
- How to get the best Mortgage deal if I'm Self-employed?
- How much can I borrow for Self-employed Mortgages?
- I've been declined by my bank–can I still get a Mortgage?
- Can I get a Mortgage using retained profits?
- Can I get Help to Buy if I'm Self-employed?
- Can I get Self-employed Mortgages with bad credit?
When a figure for your income is established, mortgage lenders will offer the same rates whether you are employed or self-employed. The task is to identify the best mortgage deal that is available to you in your circumstances, and our experienced advisers will analyse each product, studying the initial interest rates and follow-on rates, as well as any lender’s fees and other hidden costs or benefits. By doing this, we can establish the true cost of the mortgage products and work out which one will be the best for you in the long term.
The amount you are able to borrow can vary considerably according to the mortgage lender you are dealing with. Each may have their own method of calculating your income–for example some may simply use the latest year’s tax return as a guide, while others will take an average of the last 2 or 3 years’ figures.
Many mortgage lenders will apply different criteria to how they consider income from dividends drawn from a limited company, retained profits, direct income or a salary. However, while there is no hard-and-fast rule for how lenders may calculate income, once a figure has been arrived at, you should be subject to the same criteria and able to borrow as much as anyone else applying for a mortgage with the same lender.
Every bank, building society and lending institution will have its own criteria for lending, as well as their own internal methods for calculating your credit score, and being declined by your bank certainly does not mean you cannot get a mortgage somewhere else.
If you do get turned down by your bank for a mortgage, due to being self-employed or any other reason, your next course of action should be to speak to a specialist mortgage broker. A mortgage broker will have the necessary knowledge and scope to be able to give a thorough assessment of your situation and also identify the most suitable lender and product for your individual circumstances. You’ll save a huge amount of time, find you’re in the best possible position for getting a mortgage and gain complete peace of mind, knowing that all options and lenders in the market have been considered.
It can be difficult to use retained profits when applying for a mortgage, as many mainstream lenders do not consider this as income. Most lenders will consider a business owner’s dividend income on top of their salary when assessing a mortgage’s affordability, and profits not withdrawn from your business are not generally included.
This said, the amount of collateral represented by retained profits in your business could work out as significantly more than your salary and dividend income combined. There are a number of specialist lenders who will take retained profit into account when calculating your annual income for the purpose of your mortgage application.
Our expert brokers will be able to give you an honest assessment of the possibilities and go into your options in more detail. Simply get in touch through our enquiry form and we can start the process to establish the best way forward.
You might think that being self-employed might negatively impact your chances of being able to take advantage of the Government’s Help to Buy: Equity Loan scheme, but this is not the case. Our specialist mortgage brokers will be able to source the right lenders who will be able to supply a Right To Buy mortgage, make an assessment of your self-employed situation and match you with a company who can look favourably on your application.
You might have found that trying to get any kind of mortgage with bad credit can be a struggle. Much depends on the nature of your negative credit events, and the amount of time that has passed since they occurred.
Our experienced mortgage brokers have specialist knowledge of this very niche area of the mortgages market. We will be able to offer an honest, complete assessment of your situation and–as we have access to mortgage lenders and products not normally advertised on the high street–we’ll identify the mortgage deals you might be able to expect as a self-employed person with bad credit.