Mortgages for Self Employed – Documents You Need

The journey to securing a mortgage, particularly when your circumstances may not fit the traditional mould, can often seem like an intimidating process. For the self-employed, this can feel even more daunting. At Lendese, we understand the unique challenges and uncertainties you might face. The current mortgage market is indeed fierce, and the intricacies of applications can be perplexing. This comprehensive guide is designed to put your mind at ease, providing you with invaluable guidance and support from our mortgage experts. 

If you’re self-employed and on the quest for that perfect mortgage, you’re in the right place. Whether you are a sole trader, limited company director, freelancer, contractor, or partner in a business, the road to securing your dream home or property investment starts here.

In the following sections, we will delve into the essential documents required for a mortgage application, no matter your self-employment status. We will explore what lenders look for in your financial history and provide tips to bolster your mortgage prospects. We understand that every piece of paperwork and every financial detail you provide are critical, and we’re here to guide you every step of the way.

Do self-employed mortgages exist?

In short, self-employed mortgages as a specialist product are very few and far between. However, there are differences in the application process for self-employed applicants.  If you’re self-employed and looking to apply for a mortgage, your broker or lender will likely require extra documentation and information so that they can understand your affordability. But don’t fret, once you’ve provided everything required, you’ll have access to the same products that are available to employed people. 

However, the way your income is assessed by your lender or broker is different. This is because self-employed income is considered, rightly or wrongly, less stable than an individual on PAYE, because of the stipulated basic salary that offers additional security. 

Lenders and brokers want to know and understand these fluctuations before making an offer, which is why self-employed applicants will be asked to provide proof of income over a longer period (usually two-three years) to enable lenders to calculate an ‘average’ income.

Is it harder to get a mortgage when self-employed?

Getting a mortgage when you are self-employed can be more challenging depending on your circumstances, but don’t be deterred because it isn’t impossible. In the absence of security and employer offers, brokers and lenders require more information to be assured that you can afford your mortgage if you’re self-employed.  It’s also important to remember that once approved, the mortgages themselves are no different if you’re self-employed. 

Similarly,  your employment status shouldn’t affect how much you have to pay for your mortgage provided you can provide sufficient proof of your income and can afford the repayments. You should be eligible for the same rates as someone working in an equivalent full-time role. 

Two key factors that affect mortgage rates for both employed and self-employed applicants include:

  1. The size of your deposit – in general, the larger your deposit the lower your mortgage rate.
  2. Your credit score – a higher credit score will allow you to apply for a wider range of mortgage deals.

Documents you’ll need for a mortgage application

Before starting your application, it’s important to understand the documentation you will need to have available and ready to present.  Not having this information could delay your application, and at worse, negatively affect the decision about your application.  The documents required will also vary depending on your type and status of self-employment. However, regardless of this, if you are self-employed you will need to provide the same documents as anyone else, such as:

  • Passport or driving licence (for proof of identity)
  • Recent utility bills (for proof of address)
  • Bank statements for the previous three to six months (lenders will often ask about your spending habits)
  • Evidence of deposit money (if not provided by bank statements)

However, to demonstrate your income and for your lender to calculate a ‘basic salary’, you’ll likely be asked to provide additional information and evidence, which varies according to your type of self-employment but will normally come in the form of personal tax returns or company accounts.

Soletrader & freelance mortgage documents

If you’re a sole trader looking to apply for a mortgage, you’ll need to have at least 12 months of trading history. If you’ve been working as a sole trader or freelancer for a longer period, then your assessment is usually based on the last two or three years.

Additional documentation you may need to produce if you are a sole trader or work as a freelancer include:

  1. Certified accounts for the relevant period, ideally from an accountant
  2. Tax calculations and tax year overview from HMRC for the same duration – Provided you have filed your income with the HMRC via a self-assessment, you’ll need your latest tax returns.  This usually comes in the form of an SA302 document which can be downloaded online from the HMRC portal. You can also request a copy by post. 

Limited company director mortgage documents

If you’re a Limited company director, most lenders will ask you to provide:

  1. Full, finalised accounts, ideally certified by a qualified accountant for at least one full tax year.
  2. Your SA302 year-end tax calculations from HMRC (usually with the corresponding tax year overview).
  3. Business bank statements, plus occasionally personal bank statements as further evidence of your income. 

If your lender or broker requires more than one year’s accounts, they will more than likely take an average annual income based on this period.  Whilst this can be frustrating, particularly if your business is now doing well, it means that lenders can mitigate the risk of you over-borrowing.  Don’t lose heart, as some lenders will base these figures on just one year’s worth of documentation, so it’s worth shopping around for a specialist lender, or speaking to one of our team for support. 

Contractor mortgage documents

If you’re a contractor looking to apply for a mortgage, most lenders and brokers will calculate your income in the same way as a freelance worker.  However, if you’re on a day rate, some lenders are prepared to calculate an estimated annual income based on this information.  You will need to provide the following evidence:

  1. Full, finalised and certified accounts.
  2. Your SA302 forms or HMRC tax year overview and tax year calculations.
  3. Evidence of your contracted day rate.
  4. Contracts from current and future clients to prove the availability of ongoing work.

Partnership mortgage documents

If you’re a partner at a business and have been for more than 12 months, and own more than 25% of your business, lenders and brokers can determine your income from this partnership to support your mortgage application. 

Your lender will want to see the value of your share of profit before income tax is applied. To do this, you will need to provide:

  1. Full, finalised and certified accounts for the past 12 months (at least)
  2. Your SA302 forms or HMRC tax year overview and tax year calculations

Other evidence you’ll need for a mortgage

As well as documentation on earnings, lenders will want to know the outgoings as well, so that they can understand and assess your affordability. These documents demonstrate how much you spend on bills and other costs which could affect your ability to make repayments once offered your mortgage:

3 top tips for preparing for a mortgage when self-employed

Following these three tips can help improve your chances of getting a mortgage at a good rate:

Know your credit score

Make sure you check your credit score before you apply for a mortgage.  It is free to check your credit score and allows you to correct any errors and make improvements to increase your credit score before applying. 

Your credit score could make a huge difference in the mortgage rate you qualify for.  The better your credit score, the better the rate that you will be offered most of the time. There are several simple ways to improve your credit score including closing old credit accounts and getting on the electoral roll. We can also support you in getting your credit score in better shape.

Have a good deposit

The larger your deposit, the better your chances of securing a competitive rate and being accepted by your lender. Save the biggest deposit you can before applying to achieve the most competitive rate available to you.

Monitor your outgoings

It’s important to monitor your outgoings when applying for a mortgage, whether you’re self-employed or otherwise, as it will enable you to assess your own ability to comfortably make your repayments, particularly if interest rates rise, or if the cost of living continues to increase. You’ll need to consider whether you can make repayments if your circumstances change to demonstrate that your income and expenditure is manageable and carefully consider whether the repayments on your mortgage will be feasible if your income were to decline.

Are there outgoings that you can trim back or decrease? Which of your outgoings is likely to remain, which may no longer be applicable, and are there impending additional costs including school fees, car repayments or other plans that may affect your ability to make your mortgage repayments?

We’re here to help

Getting a mortgage if you’re self-employed is possible, and with the right documentation will enable you to apply for the same products as someone in equivalent full-time employment.  

Lendese mortgage advisors understand that your application may be more complex, and have helped thousands of self-employed people on their way to a competitive mortgage with minimal hassle. At Lendese, we like to keep things simple!

Our mortgage advisors can help you make an informed choice about the option right for you, depending on your circumstances, and will have access to a wider range of products that they can take you through. 

By following our simple guide to preparing the right documentation and understanding what you’ll need to make an application, you’ll improve your chances of getting accepted. 

Your deposit size and evidence of income will largely determine the products available to you, but your mortgage advisor will walk you through your options and help you decide which option is best for you. 

To speak to one of our advisors for more information, please give us a call on 01473 480 078, or contact us via our online form and one of our friendly team will get back to you!