According to the Office of National Statistics, more people in the UK are self-employed than ever before and the rise of the ‘gig economy’ and desire for a healthier work/life balance means we’ll probably see numbers steadily increase. Working for yourself can have lots of advantages and afford greater freedoms, but one area that is notoriously difficult for the self-employed is getting on the housing ladder. It’s tough for first-time buyers anyway, but added a self-employed status into the mix can cause problems.
Not having a regular income or a consistent income can make banks and lenders uncertain about whether someone who’s self-employed will be able to keep up with mortgage payments. And if you’ve not been in business for long, they might decide your long-term prospects aren’t healthy, because you’re not well-established.
Prior to 2007, people could apply for a mortgage with self-certification, which meant simply telling lenders how much you earned and being moved through a relatively fast-track system. This was discarded after the system was abused by people who inflated their projected income and fell behind on payments. The consequences of this is self-employed workers have to jump through lots of hoops to secure a mortgage.
So, what can you do to put yourself in the best position possible to secure a mortgage with a lender?
- Always seek advice from a qualified mortgage advisor first and foremost.
- Most banks will want to see 2 or 3 years’ worth of accounts or tax returns, so you can prove your income. If you don’t have 2 or 3 years of accounts then you can look to smaller lenders who look more closely at your individual circumstances.
- Usually banks will want accounts certified by an accountant to prove they’re accurate.
- Banks will ask for a SA302 form which shows how much income you’ve declared to HMRC, to see that things add up. You can request one from HMRC.
- Your regular outgoings will be under scrutiny too. Banks will want to see how much you spend per month on utilities etc, so they can decipher whether you can afford mortgage payments. It’s worth trying to budget before you apply.
- Try to maintain a good credit rating. Keep up with loan repayments and debts, so you can improve your rating.
- You’re likely to need a more chunky deposit of around 20% if you’re self-employed, especially if you don’t have 2 or 3 years of accounts. This will increase your chances.
Although it might sometimes feel like it, it’s not impossible to get a mortgage when you’re self-employed. Seek advice, keep on top of your accounts and budget and try to save as much as possible. Buying your perfect home could be closer than you think!