Documents Needed for Self-Employed Mortgage
How does a Self-Employed mortgage differ from other mortgages?
Being Self-Employed doesn’t require you to use a different type of mortgage to any other applicant and there are no mortgage products aimed specifically at Self-Employed people. It’s possible that the confusion about Self-Employed mortgages lies in the fact that the application process is slightly more arduous than it is for a traditionally employed person.
Despite the substantial increase in Self-Employed business owners and Freelance workers in the UK, income derived from self-employment is still considered to be less stable. Mortgage Lenders therefore see Self-Employed applicants as more of a risk to their lending and seek extra proof of income in order to mitigate some of that perceived risk. This proof will need to evidence your earnings for two to three years, in order that they can determine an average standard income for you.
What specific documents do you need?
Depending on the type of Self-Employed income stream you have, you will need to fulfill slightly different criteria in terms of the documentation you need to submit to prove your income.
Usually, regardless of your employment type, the lender will need to be satisfied that you have a substantial history of employment in your current role and they will be looking for two to three years as a minimum. Some Limited Company Directors and other types of Self-Employed applicants in particular careers may be able to get a mortgage offer with as little as one year’s proof of income, however, the interest rates are likely to be higher to reflect this flexibility.
Alongside the standard identity documents that all applicants will need to provide, such as proof of address, lenders will accept the following documents for proof of income:
Limited Company Director
As a Limited Company Director, the income that lenders will consider against your mortgage application is usually your personal salary and dividends. A few lenders will also consider your retained profits alongside this, but this is less common.
In order to evidence this, you will need to provide three year’s worth of certified accounts and SA302 tax calculation forms. Your business bank statements may also be requested, as well as a business plan to prove your future earning capacity, if you have a shorter trading history.
As a part owner of a business, you must own at least 25% for your income to be considered in support of your mortgage application. Your share of the net profits will be used if you meet the minimum ownership requirement.
Proof of income is usually the same documentation as required by Limited Company Directors.
Sole Traders and Freelance workers
Lenders tend to use an average of your income over the last two to three years, depending on their specific criteria, to calculate your mortgage allowance. Some may consider using the latest year’s figure, but this is less common.
You will need to provide SA302 forms for the requested tax years to prove your income.
How do you improve your chances of being accepted by a lender?
When applying for a mortgage as a Self-Employed applicant, one of the best things you can do to improve your chances of satisfying lender criteria is to ensure you prepare in advance. The following preparations are recommended:
A good credit rating is beneficial to all mortgage applicants, regardless of their employment type. Some simple ways you can improve yours are:
- Make sure you are on the electoral roll at your current address
- Pay off existing debts as far as possible
- Ensure utility bills and credit card repayments are timely
- If you have credit arrangements, stay well within 50% of your limits and don’t apply for any additional credit
If you can afford to offer more than the minimum deposit requirement on your chosen property, this will improve your favour with the lender. It reduces some of their risk, which also potentially gives you access to better interest rates.
If you don’t already use an accountant for your business finances, ensure that you have your finalised accounts for the requested tax years signed off by a certified accountant.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP THE REPAYMENTS ON YOUR MORTGAGE