What Income do Mortgage Companies Look At Self-Employed?

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What Income do Mortgage Companies look at for the Self-Employed?

Getting a mortgage as a self-employed applicant is mostly a question of proving that you have a reliable income and mortgage lenders will ask for various documents to check your affordability. We take a look at what’s involved and how you can best prepare.

What counts as self-employed?

Most lenders will see you as self-employed if you own more than 20% of a business that provides your main income.

Self-employment can mean that you’re a sole trader, a company director, a partner, a freelancer or a contractor. These are all typical situations where Fancy a Mortgage can help you find suitable deals.

Why proving your income is so important

Mortgage lenders always ask for proof of income as part of the application process, and it’s central to how much they will offer you in a mortgage. Generally you can borrow around four to five times your annual earnings. 

Self-employed mortgage applicants have to provide a couple of years’ business or tax details, because often your income varies from month to month, year to year. More records give the lender a better sense of your average income and you will also need to supply business and personal bank statements. Lenders will also look at your credit score too.

I’m a Sole Trader, how do I prove my income? 

As a Sole Trader, your business profits are the same as your income. Lenders usually assess Sole Traders by looking at your self-assessment details, previously known as the SA302 form. You usually need up to three tax years’ calculations, which you can download from the HMRC website. 

I own a business, how do I prove my income? 

If you run your own Limited Company, lenders usually want to see certified accounts for the past one to three years. Each year’s accounts should state your salary. If not, you might need to supply P60 forms or tax calculations. 

Different lenders will take your income in different ways. If you pay yourself a low salary to keep tax down, you may need to find a lender that will base your income on net business profit rather than your stated salary and dividend payments. This approach will usually allow you to borrow more.

I’m a contractor – how do I prove my income?

Some lenders have a special approach for self-employed borrowers whose core business is contracting, and these may base your income on your day rate. They could set a minimum requirement for continuing income, commonly two years, although some specialist lenders will accept 12 months of continuing income. You will need to show details of your current and previous contracts. 

Do self-certification Mortgages still exist? 

A few years ago most self-employed people took out self-certification mortgages. Instead of proving your annual earnings, you just signed to confirm your stated income. The FCA banned these mortgages after the credit crunch in 2008 and set Mortgage Lenders new responsibilities in assessing potential customers earnings. 

What’s the process to get a self-employed mortgage?

The mortgage process is no different for the self-employed. You start by talking to a Mortgage Broker or using a mortgage calculator to work out how much you could borrow and set your property budget. Checking credit ratings is important – unpaid credit cards or other debts can affect whether you will be accepted. 

A broker will help you get an Agreement in Principle from a lender, which will encourage a vendor to accept an offer from you on their property.

Next, you apply for a mortgage and provide all the documentation the lender asks for. As long as you meet all the criteria, the mortgage should be approved.

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

The most important step is to apply for the right mortgage deal, and then as long as you meet the lender’s criteria, you are likely to get approved. Here at Fancy a Mortgage, it’s our job to find the most appropriate product and mortgage lender to suit you. 

Fancy a Mortgage is an appointed representative of Quilter Mortgage Planning Limited, which is authorised and regulated by the Financial Conduct Authority. We are registered in England. Call us today for a free initial consultation.

Your home may be repossessed if you do not keep up repayments on your mortgage.