A variable rate mortgage is one where the amount of interest you pay can change. This can happen at any time, and it’s dictated by the lender, which is enough to make anyone gulp.Read more
How to get a mortgage
Mortgages for self-employed people
Mortgages for self-employed people
Self-employment is famous for its endless advantages, including setting your own schedule and having the opportunity to stay in your pyjamas until lunchtime (if you don’t have a video call, that is). But what happens when it comes to getting a mortgage?
Despite it being a popular term, there’s actually no such thing as a ‘self-employed mortgage’. If you’re self-employed, you technically have the same choice of deals as everyone else. You’ll be asked to pass the exact same affordability tests (like income and credit score checks), and in theory you’ll be treated the same as any other borrower.
The difference is that proving your financial status can be trickier than it is for borrowers with an employer, which leads to the common belief that it’s just too hard to get a mortgage if you’re self-employed. But with a stable income and a bit of extra preparation, there’s no reason why you can’t get a suitable deal just like everyone else.
Am I self-employed?
If you’re registered as a sole trader, a contractor, or the director of a company (typically with a greater than 25% shareholding), you’re self-employed. However, if your self-employment is more of a side business – for example, you have an office job but make money from painting houses in your spare time – you’ll get a mortgage based on your permanent work, not the bits you do on the side.
That’s because you only count as self-employed if you earn your main income from the business you own (or part-own with someone else).
I’ve heard of self-certification mortgages. Can I get one?
Sadly not – they just don’t exist anymore.
Self-certification mortgages used to allow self-employed people to state how much they earned without supplying evidence. This sometimes led to problems as mortgage lenders were offering mortgage deals that the borrower couldn’t afford.
This type of mortgage was banned in 2014. It might be disappointing, but it’s all for the best; your mortgage lender has a responsibility to check you can afford your repayments to stop you getting into a sticky situation.
What documents does the mortgage lender need?
Every borrower needs:
- Recent utility bills
- Your passport or driving license (as ID)
- Three to six months of bank statements
Self-employed borrowers also need:
- Two to three years of account statements, preferably from a certified accountant
- Form SA302 (a tax return form) for the last two or three years.
- Additional documents such as bank statements that prove the income on your tax return form.
- Evidence of future contracts, if you have any or it’s relevant.
If there’s anything else you need to provide, your mortgage broker will help you get it all together.
Will I be treated differently to ‘normal’ borrowers?
Strictly speaking, you won’t be treated any differently to a borrower who’s in full time employment. As long as you can prove that your earnings are frequent, stable, and allow you to pay off your debt just like anyone else, you can go through the normal home buying process.
But, just like ‘normal’ borrowers, the mortgage deals available to you will still depend on your credit score and the size of deposit you can put down. Nobody escapes that one!
Buy to Let mortgages are exactly what they sound like: they allow you to buy a property, but instead of living in it you’ll rent it out.Read more
Apart from the famous Buy to Let mortgage, which lets you become a landlord, interest-only mortgages are uncommon.Read more