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Self-employed mortgages

Self-employed mortgages made easy with MoneySuperMarket

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Your mortgage is likely to be your biggest financial commitment. So shopping around for the best deal is vital. MoneySuperMarket can help you compare thousands of products from a wide variety of lenders, covering the whole of the market. This way, you can be confident you’re getting the right deal.

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1Annual saving based on re-mortgaging £194,706.00 from the highest Big 6 Lender Standard Variable Rate at 4.49% to a five-year fixed rate of 2.49%. LTV 47.6% and lower fees (£999). Details correct as of 1st June 2022.

Your home is at risk if you do not keep up repayments on a mortgage or other loan secured on it.

Is it hard to get a self-employed mortgage?

If you’re self-employed, it can be more of a challenge to get a mortgage because you’ll need to prove you have a reliable income. But getting a mortgage when self-employed is certainly not impossible.

There are plenty of ways to prove to a mortgage lender that you have a reliable income. It’s usually just a case of jumping through a few extra hoops.

house illustration

What are self-certification mortgages and do they still exist?

“Self-certification” or “self-cert” mortgages were specifically designed for the self-employed, allowing people to self-certify how much they earnt in a given year, with no need to provide evidence.

However, self-cert mortgages were banned completely in 2014 due to concerns borrowers were being accepted for mortgages they couldn’t afford.

This means those who are self-employed now need to apply for a mortgage in the same way as everyone else.

What counts as self-employed?

Lenders will view you as self-employed if you own more than 20% to 25% of a business, from which you earn your main income.

You could be a sole trader, company director, or contractor.

self-employed

How will you be assessed as a self-employed mortgage applicant?

It’s fair to say that there are different types of self-employed workers. Based on the category you fall into, lenders may have different requests and expectations. Here are the categories you might fall into:

  • Limited company

    If you own a registered limited company, then you pay your own salary and dividends. When applying for a mortgage, your lender will want to know how much your earnings amount to

  • Business partner

    If you have one or more business partners, mortgage lenders will ask to see proof of your share of the profits

  • Sole trader

    It’s likely that, if you’re a contractor or a freelancer, you’ll be classed as a sole trader. In this scenario, you’ll be asked to fill out a tax self-assessment, which will then need to be undersigned by an accountant. To certify your income, you’ll then have to provide your mortgage lender with an SA032 form

How do you get a self-employed mortgage?

If you’re self-employed and looking for a mortgage, you will, in theory, have access to the same range of mortgages as everybody else and you’ll need to pass the lender’s affordability tests in the same way as any other borrower.

But because there is no employer to vouch for your wage, self-employed people are required to provide far more evidence of their income than other borrowers.

Since the introduction of the Mortgage Market Review in 2014, mortgage providers have considerably tightened up their lending criteria and need to be convinced you can afford your mortgage before they agree to lend you the money.

self-employed mortgage

How much can you borrow as a self-employed?

It depends mainly on your income and on the size of your deposit. Generally speaking, you can expect lenders to pay out 4.5 times your annual income. However, this can vary based on your own personal circumstances.

As a self-employed, you may want to put aside as much as you can for a deposit, so that you can benefit from a wider range of options when it comes to choosing a deal.

piggy bank

Do self-employed people have to pay higher mortgage rates?

Self-employed mortgages aren’t necessarily more expensive. As long as you’re able to supply enough information about your income, you should qualify for the same mortgage deal as someone with a comparable salary in a permanent, full-time job.

The mortgage rate you get is much more likely to depend on the size of your deposit, as well as your credit rating.

The more you can put down as a deposit, and the higher your credit rating, the better your mortgage rate is likely to be.

However, if you struggle to get accepted by a mainstream bank, you may have to apply with a specialist lender that deals with self-employed borrowers, and you may find that rates are higher.

How to boost your mortgage chances

There are a number of steps you can take to increase your chances of being accepted for a mortgage when self-employed. For instance, you can:

  • Save as much as you can for a deposit

  • Check your credit rating for free with MoneySuperMarket’s Credit Monitor

  • Correct any mistakes on your credit report

  • Get on the electoral roll

  • Avoid buying certain properties, such as flats above commercial premises or old or unusual buildings, as lenders are less willing to lend on these

  • Speak to a mortgage broker

  • Look for a mortgage with a specialist lender

Can I get a joint mortgage with a self-employed worker?

Yes, you can. If you’re taking out a joint mortgage, both names will appear on all the required mortgage documentation and you’ll both be responsible for the necessary repayments. What’s more, both incomes will be taken into consideration to assess whether you can realistically buy.

The self-employed applicant will have to go through the process mentioned above, including giving proof of their earnings and outgoings. Ultimately, they’ll have to follow the same steps as if they were applying for a mortgage on their own.

joint mortgages

How to find the best mortgage deals for the self-employed

The best way to find a competitive self-employed mortgage is by shopping around and comparing mortgage deals on MoneySuperMarket.

Mortgage quotes are automatically sorted by monthly cost, showing you the options which are most suited to your needs. When comparing deals, make sure you factor in the cost of any fees, as you may find it cheaper to go for a mortgage with a higher interest rate but lower fees.

If you’re struggling to get accepted by mainstream lenders, you may find that using a specialist broker will improve your chances of securing a mortgage. They should have useful knowledge of for those who are self-employed, which are most likely to offer a competitive interest rate to a self-employed borrower.

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To prove your income when you apply for a self-employed mortgage, you will need to provide:

  • Two or more years of certified accounts

  • SA302 forms or a tax year overview (from HMRC) for the past two or three years

  • Evidence of upcoming contracts (if you’re a contractor)

  • Evidence of dividend payments or retained profits (if you’re a company director)

As well as evidence of your income, you will also need to give:

  • Passport

  • Driving licence

  • Council tax bill

  • Utility bills dated within three months

  • Six months’ worth of bank statements

Lenders will want to examine your bank statements to look at how much you spend on bills and other costs to be certain you could afford your mortgage repayments. They may ask about:

  • Household bills

  • Travel and commuting costs

  • Childcare

  • Holidays

  • Socialising

  • Hobbies

  • Credit card and store card repayments

  • Loan repayments

  • Car finance agreements

  • Catalogue credit accounts

If you only have accounts for one year or less, you may find it a challenge to convince a lender that you can afford to repay a mortgage – but, again, it’s not impossible. Having evidence that you’ve got regular work or providing proof of future commissions may help.

Just be aware your choice of mortgages may be more limited.

Lenders prefer self-employed mortgage applicants to provide accounts that have been prepared by a qualified chartered accountant; that way, they can be sure of your reliability. It’s likely that they will focus on the average profit you’ve earned over the past few years.

Having a healthy deposit and a good credit history will also help your chances of securing a mortgage when you’re self-employed.

Other mortgage types to consider

Other mortgage types you might want to consider if you’re looking to remortgage include:

  • Capped-rate mortgage: a capped-rate mortgage is a variable-rate mortgage, but there is a limit to how high the rate can go. This can be useful if you want a variable-rate mortgage, while avoiding unaffordable payments if the rate rises

  • Discounted mortgage: a discounted mortgage is another type of variable-rate mortgage. This offers a discounted rate on the lender’s standard variable rate for a certain period of time

  • Offset mortgage: an offset mortgage helps to reduce the overall interest you pay by offsetting your savings against the outstanding balance of your mortgage. But this means you won’t be gaining any interest on your savings during the deal

Fixed-rate mortgages have an interest rate that stays the same for a set period. This could be anything from two to ten years. Your repayments are the same every month and you don't need to fear fluctuations in interest rates.

If you choose to leave the deal before the end of the fixed term, most will charge you a penalty. This is known as an (ERC).

Interest rates adjust periodically with a variable-rate mortgage, which means repayments may change throughout the loan term. Usually, the interest rate changes in relation to the Bank of England's base rate. This is very influential on variable interest rates, as is the base rate of each lender.

For standard variable-rate (SVR) mortgages, each lender has a SVR that they can move when they like. In reality, this tends to roughly follow the Bank of England's base rate movements. SVRs can be anything from two to five percentage points above the base rate (or higher). They can also vary massively between lenders.

The other type of variable mortgage is a discount mortgage. Rather than being linked to the Bank of England base rate, discounts are linked to the lender's standard variable rate (SVR). For example, if the SVR is 4.50% with a discount of 1%, the payable mortgage rate is 3.50%. If the SVR rose to 5.50%, the pay rate would rise to 4.50%.

The problem with discounts is that SVR changes are at the lender's discretion. So, your mortgage payments could change even if there has been no alteration in the Bank of England base rate. What's more, even if the SVR changes following a move in the base rate, there is no guarantee that it will increase or decrease by the same amount.

As a result, trackers are usually seen as more transparent than discounted deals. They are also often seen as being fairer for the borrower.

For example, when the base rate fell from 5.00% to 0.50% between October 2008 and March 2009, Lloyds TSB was the only top-20 lender to reduce its SVR by the full 4.50%. All the others cut their rates by less.

When the Bank of England raised the base rate from 0.25% to 0.5% in November 2017, anyone who wasn’t on a fixed-rate mortgage was at risk of seeing their repayments increase. A number of leading mortgage lenders followed and increased their tracker and/or SVR rates a month later.

Most mortgage deals carry arrangement fees, which can vary from a few hundred pounds up to a couple of thousand.

Also bear in mind that these set up costs can sometimes be made up of two fees. Lenders may charge a non-refundable booking fee, which is effectively a product reservation fee. If your remortgage falls through and you don’t end up taking the mortgage deal, you won’t get this fee back.

The second type of fee is an arrangement fee which you pay on completion of the mortgage, so you won't have to pay it if, for any reason, you don't take the mortgage.

Calculate how early you could pay off your mortgage. But make sure you read our mortgage overpayment guide first, as overpaying isn’t the right move for all homeowners.

Mortgage overpayment calculator

Remember to always factor additional fees into the overall cost of any deal. Even if a lender is offering a seemingly unbeatable rate, steep fees could mean that it actually works out to be more cost-effective to opt for a higher rate with much lower fees or no fee at all.

The best remortgage rate for you depends on how much you are looking to borrow. A high fee is often worth paying in order to secure a low interest rate if you are applying for a large mortgage. But those with smaller mortgages could be better off opting for a higher rate and lower fee.

However, while this is the general rule, you need to work out the total cost over the term of the deal. For example, if you are going for a two-year fixed rate, you need to work out the cost of your repayments over the term. You can do this by finding out what the monthly payment will be using our  mortgage calculator – and then multiplying by 24. You then need to add on the arrangement fee to find out the total cost.

You will likely find that you have more mortgage deals to choose from if you have a good credit history, so it’s worth making sure that your credit report is as good as it can be before applying for a remortgage. Paying off any outstanding borrowed credit you owe and making sure your current address is on the electoral roll can help to improve your credit score.

The more money you can save as a deposit, the less you’ll need to borrow as a mortgage loan. What’s more, having a bigger deposit can help you get access to more competitive mortgage rates.

Lenders will often have a maximum ratio they’re prepared to offer you. Instead, the rest will need to be made up with either a deposit or an equity loan like the government's Help to Buy equity loan scheme.

Using a mortgage comparison tool can give you a better idea of how much you’d need to pay in monthly costs and interest, the duration of the deal, the maximum LTV, and any product fees you may need to pay for the remortgage deals available based on your borrowing requirements.

It’s important to remember that the mortgage deals you’re offered when you go to make an application may differ because they will then be influenced by your financial situation and credit history.

Get free mortgage advice and see deals from the whole of the market with broker London & Country. Call free from your landline or mobile on 0800 170 1943 any day. Read more about London & Country

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