Jamie Lennox - Mortgage Adviser - Dimora Marketing

2 common problems faced getting a mortgage when self employed

Getting a mortgage when self employed

In recent years, self-employment has become an increasingly popular option for many individuals in the United Kingdom. While being self-employed can provide flexibility and freedom, it can also create some unique challenges when trying to secure a mortgage. In this blog post, we will explore some of the problems faced getting a mortgage when self employed and what are top tips are to improve your chances of getting a mortgage approved.

Proof of Income

One of the biggest challenges for self-employed individuals when trying to obtain a mortgage is proving their income. Unlike employees who receive regular payslips, self-employed people have to rely on their accounts or tax calculations to prove their income. This can be problematic because self-employed individuals as this information can be up to 18 months old which may not be a true reflection of what you are earning currently.

Difficulty with Affordability Calculations

Since the pandemic, a number of lenders have taken a more cautious approach with self-employed applicants, with many using a reduced income multiple for anyone that is self-employed which could result in a lower borrowing amount than what would be available to someone who was employed.  With can make getting a mortgage when self employed even more tricky.

getting a mortgage when you are self employed

In summary, being self-employed you may face more hurdles than employees. However, with careful planning and preparation, it is possible for self-employed individuals to secure a mortgage and purchase their dream homes. We will now look at our top tips to make sure you get your ducks in order and ready for when you need to apply for a mortgage.

Have a Steady Income

Lenders want to see that you have a steady income before they approve a mortgage. As a self-employed individual, this can be challenging as your income can fluctuate. It is important to provide lenders with your income history, tax returns, and bank statements. Having a consistent income can improve your chances of getting a mortgage.

Have a Large Deposit

A larger deposit can improve your chances of getting a mortgage. It shows lenders that you are committed to the investment and are financially stable. As a self-employed individual, you may be required to put down a larger deposit to offset the perceived risk associated with self-employment. The amount required may vary depending on the lender and your individual circumstances.

Plan ahead

Lenders will look at either your last 2 years’ accounts or your last 2 years’ tax calculations (previously known as an SA302) and tax year overviews and will typically look to average your earnings over that period. If your accountant it trying to be ultra-tax-smart to reduce your profit and tax bill, this will have a knock-on effect on when you want to apply for a mortgage.

Work with a Mortgage Broker

Working with a mortgage broker can help you find mortgage deals that are suitable for your individual circumstances as now all lenders will treat self-employed applicants in the same way. Mortgage brokers have access to a range of mortgage products and can provide you with expert advice on the mortgage application process. They can also help you navigate the complexities of self-employment and provide you with guidance on how to present your income to lenders.

Provide Detailed Financial Information

As a self-employed individual, it is important to provide detailed financial information to lenders. This includes your tax returns, business accounts, and bank statements. Providing comprehensive financial information can help lenders assess your income and make an informed decision on whether to approve your mortgage application.

In conclusion, securing a mortgage as a self-employed individual can be challenging, but there are strategies that can improve your chances of getting approved. Maintaining a good credit score, having a steady income, having a large deposit, working with a mortgage broker, and providing detailed financial information can all help you secure a mortgage and purchase your dream home.

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