Getting A Mortgage As Self-Employed | Mortgage Broker Advice

Podcast Hosts:

Gemma – Host
Ifthiika (Ifthi) – Accountant and Mortgage Broker

Introduction

Gemma:
Today, we’re talking about how mortgages work for self-employed individuals.
Ifthi has over 10 years of experience helping self-employed people get mortgages and will share his tips.

Q&A Discussion

Q1: What Is the Difference Between Self-Employed and Employed?
Ifthi:
Employee: Receives a salary via pay slips, straightforward proof of income, consistent, verified with HMRC via P60.
Self-Employed: Works for their own business:
Sole proprietor
Partner in a business
Company director (banks classify as self-employed)
Self-employed individuals may draw a small salary but most income comes from business profits.
Income is inconsistent and seasonal, which makes mortgage assessment more complex.

Q2: How Does This Affect Getting a Mortgage?
Ifthi:
Employees: Easy verification via pay slips and P60s, predictable income, straightforward bank checks.
Self-Employed: Income varies, may have high and low months, or an inconsistent year, requiring more scrutiny by lenders.

Q3: What Documents Do Self-Employed People Need for a Mortgage?
Ifthi:
SA302: Equivalent to an employee’s P60; shows income and tax due for the last financial year.
Tax Overview: Confirms that taxes as per SA302 have been paid.
Company Accounts (optional but recommended):
Some company directors have additional income not reflected in SA302
Banks may assess profits from accounts
Contractor Clients: Must also provide contracts to prove income.

Q4: How Long Do You Need to Be Self-Employed Before Applying?
Ifthi:
Generally, two years of self-employment is required.
Some banks accept one year of accounts, usually via bespoke underwriting.
Always consult an advisor before applying to avoid rejection.

Q5: Do Lenders Have Special Requirements for Self-Employed Applicants?
Ifthi:
Lenders typically require:
SA302s
Tax overviews
Sometimes company accounts
Occasionally recent bank statements to verify current income levels

Q6: Do You Need an Accountant to Get a Mortgage?
Ifthi:
Technically: No, anyone can submit accounts to Companies House/HMRC.
Practically: Yes, banks often require accountant-signed accounts.
Bookkeepers alone usually do not meet bank requirements for mortgage applications.

Q7: How Do Lenders Assess Affordability for Self-Employed?
Ifthi:
Similar to employees: banks look at income versus expenses and commitments.
Factors considered:
Loans, credit cards, large balances
Credit score
Typically, lenders may offer up to 4.5x annual income if conditions are met.

Q8: What Deposit Size Is Needed for Self-Employed Buyers?
Ifthi:
Standard schemes available:
Help to Buy – 5% deposit
Government-backed 5% deposit
Banks offering 5% deposit mortgages
Better rates usually start with 10% deposit, as smaller deposits are considered higher risk.

Q9: How Long Does It Take to Get a Mortgage for Self-Employed?
Ifthi:
Employee applications: faster due to easy income verification.
Self-employed: may take extra 2 weeks for additional checks.
Banks may verify income from previous tax returns and need more time for current year assessment.

Q10: How Does Furlough or Recent Unemployment Affect Applications?
Ifthi:
Lenders typically do not like recent furlough or unemployment.
Some government grants during COVID boosted self-employed income, causing lenders to adjust assessments.
Banks may ignore unusual income years and focus on prior consistent years.
Always consult an advisor, as treatment varies by lender.

Closing Remarks

Gemma:
These tips may not apply to everyone; always speak to an advisor if unsure.
Reminder: A mortgage is secured against your home or property and may be repossessed if repayments are missed.