Self-Employed and Seeking a Mortgage? What You Need to Know

For self-employed individuals, securing a mortgage can seem like a complex task. Unlike salaried employees with regular pay slips, self-employed applicants often face unique challenges when proving income and navigating the application process. However, with proper preparation and expert advice, obtaining a mortgage is entirely possible.

Proving Your Income

One of the biggest hurdles for self-employed individuals is proving consistent income. Lenders want to ensure you can reliably make mortgage repayments, and without regular pay slips, they need alternative proof. Here’s what you typically need:

1. Tax Returns: Most lenders will require at least two years’ worth of tax returns (SA302 forms and tax year overviews). These show your declared income and are critical for demonstrating stability.
2. Accounts: If you run a limited company, lenders may request your company’s financial accounts for the past two or three years. This provides further insight into the business’s profitability and your earnings.
3. Deposits and Affordability: The larger the deposit you can offer, the better your chances of securing a mortgage. A higher deposit reduces the risk to the lender and makes your application more appealing. You’ll also need to demonstrate that you can afford the monthly repayments, based on your income and expenses.

Navigating Complex Financial Situations

Self-employed applicants often have more complicated financial structures, such as multiple income streams, varying profit levels, or director’s dividends. Here are key considerations:

• Business Structure: Whether you’re a sole trader, contractor, or a limited company director, the way you structure your income will impact how lenders assess your affordability. Lenders may consider your salary, dividends, or net profits, depending on the business type.
• Fluctuating Income: Many self-employed individuals experience fluctuations in income from year to year. Lenders tend to average your income over the past two or three years, but sharp drops or rises in income could affect your borrowing potential.
• Expenses and Deductions: If you claim significant business expenses to reduce taxable income, it can also lower the income figure lenders use to assess your mortgage application. It’s essential to strike a balance between reducing your tax liability and presenting a strong income profile to lenders.

How to Improve Your Chances

• Maintain Detailed Records: Keeping well-organised and accurate financial records is vital. Work closely with your accountant to ensure your accounts are up to date and properly reflect your income.
• Plan Ahead: If you’re thinking about applying for a mortgage in the near future, aim for a period of stability in your business and personal finances. Try to minimise significant changes in your business structure or income levels.
• Speak to a Specialist Mortgage Broker: Self-employed mortgage applicants can benefit greatly from professional advice. A broker understands the specific requirements of lenders and can help you present your application in the best possible light.

Why Work with Impact Specialist Finance?

At Impact Specialist Finance, we understand the unique challenges faced by self-employed individuals. Our team specialises in navigating complex financial situations and has access to a wide range of lenders who are experienced in dealing with non-traditional income structures. We work with you to understand your financial situation and find the right mortgage options to suit your needs.

Get in touch with us today for tailored advice and support in securing your self-employed mortgage!