Is it difficult to get a mortgage if you're self-employed?
It’s true that the self-employed will find it harder to get a mortgage – but it’s certainly not impossible. There are plenty of ways to prove to a mortgage lender that you have a reliable income when you’re self-employed, it’s usually just a case of jumping through a few extra hoops. Read on for all the information on how to secure a self-employed mortgage.
Do self-certification mortgages still exist?
Self-certification mortgages no longer exist. They were scrapped in 2014.
Self-cert mortgages were specifically designed for the self-employed and allowed them to self-certify how much they earnt in a given year. Now that they no longer exist, self-employed people must apply for the same mortgage products as everyone else.
How do you get a self-employed mortgage?
If you’re self-employed and looking for a mortgage, you’ll still need to apply for one and 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 people. It’s likely that you’ll be asked to provide at least two years’ worth of business accounts.
Lenders also 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.
If you’re unable to provide accounts that go back as far as two years, it might be challenging for you 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.
Having a healthy deposit and a good credit history will also help your chances of securing a mortgage when you’re self-employed.
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 a person 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: the larger it is, the better rate your lender is likely to give you.
You might see higher rates if you struggle to be accepted by a mainstream bank and end up applying with a specialist lender that deals with self-employed borrowers.
How to find the best self-employed mortgage deals
Since you can apply for a mortgage with a traditional lender, the best way to secure the most competitive deal is by comparing mortgages. Simply select the type of mortgage you’re interested in, enter the amount you need to borrow, the duration of the term and the property value and you’ll be able to compare quotes in under a minute.
The mortgage quotes are automatically sorted by monthly cost, showing you which are the most affordable on a monthly basis. However, to compare what the mortgage would cost you over the term, you can order by overall cost for comparison.
Make sure you take a look at the representative example included with each quote. This highlights how much you’d pay over how long, and illustrates how much it would cost each month including the interest payments and fees.
If you’re struggling to be accepted by mainstream lenders, you may find that using a specialist broker will improve your chances of securing a mortgage. A specialist broker should have useful knowledge of which banks and building societies are more willing to lend to self-employed people, which have the strictest lending criteria and which are most likely to offer a competitive interest rate to a self-employed borrower. Having expert knowledge like this can cut out a lot of the stress and shorten the process of actually getting approved for a mortgage.
However, there is no rule that says you must use a mortgage broker. If you’ve been in business a long time, have healthy accounts and are confident that you can afford the mortgage you’re applying for, you may well choose to go it alone.