What Income do Mortgage Companies look at Self-Employed?

What counts as Self-Employed?

In order for your Self-Employed income to be considered in support of your mortgage application, you will need to earn the majority of your income through this means. The following employment types count as Self-Employed sources of income:

• Sole Trader/ Freelancer
• Contractor
• Limited Company Director or partner, with at least 20-25% ownership in the business (varies by lender)

As Self-Employed income is still viewed by Mortgage Lenders to be a less stable form of income, they will assess your income over a period of two to three years and use an average from this period to calculate your mortgage deal.

Like PAYE applicants, you are assessed based on your affordability, you just need to go further to prove your income, than employed people do.

Proving your income as a Sole Trader

As a sole Trader or Freelancer, your average figure is based purely on your personal income, which is the most straightforward to prove. Lenders will accept the following as proof of your personal income:

• Certified accounts to cover the required duration (usually two to three years)
• Tax year calculations and tax year overviews

Proving your Income as a Company Director

As a Limited Company Director, your average income is assessed slightly differently, it will be based on the average of your basic salary and the dividends taken over the two to three year period by most lenders.

There are a small quantity of Mortgage Lenders who will also look at the overall net business profits, however, this is less common.

If you own a qualifying share of a business as a partner (20-25% or more), your share of the net profits are used to find an average income.

For either job type, you will likely need to provide extensive evidence of the businesses financial stability, this usually includes the following:

• Tax year calculations and overview forms and finalised accounts
• Business bank statements covering the relevant duration
• Future income projections and business plans may also be requested, especially for newer businesses or those with low net profits

Proving your income as a Contractor

Contract workers can be assessed in the same way as a Sole Trader, or some lenders use an annualised version of your day rate, if you have one. The following forms of proof are likely to be required:

• Certified accounts
• Tax year overviews and calculations
• Some evidence of ongoing contract availability (signed contract etc)

Do Self-Certified Mortgages still exist?

Self Certification mortgages have not existed since 2014, when they were discontinued. It was found that this method of financial assessment left borrowers vulnerable to overextending their credit capability.

Since 2014 Self-Employed applicants have needed to provide substantial evidence of their income, as determined by individual lenders, although one year is usually the absolute minimum length of accounting history accepted.

How do you go about getting a mortgage if you are Self-Employed?

As long as you can adequately prove a stable income in line with lender requirements, the mortgage application process is exactly the same as it is for any other applicant. You may find it more beneficial to use a Mortgage Broker, such as ourselves, due to the complexity of Self-Employed application assessment.

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

The best way to improve your chances of a successful mortgage application as a Self-Employed mortgage applicant is to prepare in advance.

Lenders like to see stable and consistent business accounts, therefore maintaining or improving profits year on year will improve your likelihood of being approved for a mortgage. If you can save a higher deposit than the minimum required, this also increases mortgage availability and access to better rates.

Keep your finances in check, ensuring that all accounts to be submitted in support of your application are signed off by a certified accountant. Take time to improve your credit score, as a higher credit rating will improve your chances of a successful mortgage offer and access to better rates. This can be achieved by:

• Managing account details, update addresses and closing old accounts
• Ensuring you are registered at your current address on the electoral roll
• Maintaining prompt bill payments
• Reducing the use of existing credit facilities

Speak to Choice Finance

At Choice Finance, we can guide Self-Employed applicants towards those lenders suited to their exact circumstances, saving the frustration of failed applications.

Our in-depth knowledge of lender requirements enable us to help you adequately prepare in advance of your application, further improving your chance of achieving a competitive mortgage deal.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE