Getting a mortgage if you’re self-employed

Lenders want to see evidence of income when they think about lending to you. A sheaf of payslips, showing a regular monthly income is usually among the demands they make.

But what if you don’t have monthly payslips, because you don’t have an employer – because you work for yourself?

It used to be that you could request a self-certified mortgage, where you would assure the lender of the income you could expect for the years to come. Unfortunately, such deals, with their obvious potential for exaggeration if not downright fraud, were done away with in the aftermath of the financial crisis in 2008.

This has made getting a mortgage more difficult if you are self-employed – but at Continuum we know that difficult is not the same as impossible.

Computer says no?

Many mainstream lenders are unwilling to lend to self-employed customers with complex or irregular sources of income. They operate to strict rules, with automated credit scoring of an applicant details. The result is that being self-employed sometimes means being labelled as ‘high risk’, in the case of some lenders, leaving them with a simple ‘computer says no’ response. 

The owners of thriving businesses, and even highly paid professionals such as surgeons and lawyers can run into problems with this kind of blanket approach.

Fortunately, there are specialist lenders who manually underwrite applications on a case-by-case basis to assess affordability, and who will be very willing to work with self-employed applicants. They will look at your CV and your background to assess each case on its own merits.

They may not want to see the payslips that you don’t have, but they will have some criteria of their own.

The usual rules of affordability apply, but your lender may be prepared to be a little more flexible with how they are interpreted. That said, you will need to have some proof of income to hand.

  • For contractors, income is usually assessed on a day rate, averaged over a year or two. This takes into consideration any contract voids such as holiday or illness. If you are coming to the end of your current contract, you might need to explain what your plans are, and what the market for your particular skill set is doing.
  • For sole traders and small business owners, lenders will want to see at least 12 months’ worth of audited accounts. A tax return might be requested. 
  • Directors of larger companies might be asked for details of net business profits and salary.

So how can you improve your chances of getting a mortgage?

As with employees, evidence that you have money coming in is not enough. Lenders will want to know what you are doing with it.

Both personal and business expenditure will be examined when it comes to assessing the affordability of the deal you want. 

If you are running your business as a sole trader, you may not even have a separate business account. This makes it even more important that your personal account is perfect (and acts as a reminder that it could be time to get a business account).

You need to review your own personal finances, and make sure you have at least three to six months of exemplary financial management before you start looking around for a mortgage. Cut out the unnecessary spending, from online subscriptions to evenings out, and try to build up a surplus at the end of each month.

It would be useful if you can pay off any credit commitments. Things like paying for finance on a business vehicle or equipment may be inevitable, but your personal credit card balance should be brought down if you possibly can. A responsible attitude to spending will be noted when your application is reviewed.

And get some expert help

At Continuum we know the lending market, and the lenders that are most interested in borrowers who fall outside the standard criteria.

Many of these can only be reached by speaking to a financial adviser. Fortunately, if you call us at Continuum, we can guide you through the thousands of products which aren’t available on the high street and help you to secure a mortgage best suited to your needs – and even help you with the application.

The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to a particular mortgage product and you should seek independent financial advice before embarking on any course of action.

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

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