What Income do Mortgage Companies look at Self-Employed?

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What counts as Self-Employed?

For the purposes of supporting a mortgage application, you’re Self-Employed if 20-25% or more of your gross annual income is earned through Self-Employed business activities. The following roles are considered to be Self-Employed business activities by Mortgage Lenders:

  • Limited Company Director or Partner owning 25% or more in shares
  • Sole Trader/Freelance worker
  • Contractor
  • Proving your income as a Self-Employed applicant

Self-Employed applicants will typically be more rigidly assessed than employed applicants, even where their income is particularly high. This is because there is a higher potential for income fluctuation with Self-Employed income, which can make lender confidence in the stability of your income more difficult to obtain.

Proving your income as a Sole Trader

If you carry out Freelance work or act as a Sole Trader, lenders will need to form a stable annual income pattern for you, usually over more than one year, although this varies from lender to lender. In order to establish this, they will need to assess your:

  • Certified accounts over their defined period
  • Tax calculations for the same duration (previously known as SA302 forms)
  • HMRC tax overviews for the same duration

Proving your Income as a Company Director

Although for tax purposes you may be classed as Employed by your own company, when it comes to a mortgage application, Mortgage Lenders will treat your application as Self-Employed. This means that you will typically need to provide evidence of your personal salary and dividends payments, although some lenders will consider your net business profits. If you own 25% or more as a partner, just your share of the net profits will be used in the loan calculations.

Similarly to the Sole Trader, you will need to provide accounts and tax documentation. specifically:

  • Certified accounts for the term requested
  • Tax calculations and HMRC tax overviews for the same length of time
  • Business banking statements

Proving your income as a Contractor

Assessing Contractor income can be slightly more complex, as it depends on how you are paid. For the various types of contract payment, the following proof is typically required:

  • Contractors working on a freelance basis will need to prove their average annual income, so;
    • Certified accounts
  • Tax calculations
  • HMRC tax overviews
  • Day-rate Contractors will need to show proof that ongoing contract work is available to them and contracted day-rate, which will usually be annualised, and treated similarly to PAYE income
  • Umbrella company Contractors are actually assessed as PAYE applicants. The documents needed are therefore:
    • Payslips from the umbrella company
    • Bank statements

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Do Self-Certified Mortgages still exist?

Self-Certification mortgages, which are also known as Self-cert mortgages, were banned in the UK in 2009. The Financial Conduct Authority removed them from the market given the significant disingenuous lending practices associated with this form of loan, which led to substantial financial issues and home repossession.

How do you go about getting a mortgage if you are Self-Employed?

Today it’s no more challenging for a Self-Employed mortgage applicant than it is for employed borrowers to find a competitive mortgage deal. The important factors are the ability to meet the lenders’ criteria and prove your income.

How do I improve my chances of my mortgage application being approved?

There are a range of ways you can strengthen your mortgage application before applying for a mortgage. For example:

  • Save a larger deposit – offering more than the minimum requirement can show you as a responsible borrower and potentially lead to lower rates, due to a lower Loan to Value.
  • Improve your credit score will also open up more mortgage options for you, the following preparations can help:
  • Ensure all data held by the credit agencies is correct, financial associations, addresses, closed accounts etc
  • It will be highly beneficial to appear on the electoral roll at your current address
  • All existing credit (credit cards, utility bills, phone contract etc) should be paid in full and on time
  • Minimise use of credit and don’t apply for additional sources of credit
  • Speak to a Mortgage Broker

Another thing that can help both Self-Employed and employed people is speaking to one of our Mortgage Brokers. Regardless of your circumstances, you’re more likely to be accepted for a mortgage if you apply through a lender whose criteria matches your circumstances.

Here at Mortgage Advice Centre we can advise you which lenders accept people with your specific form of income. We have access to a broad panel of lenders, meaning that we can not only find you the most suitable mortgage for your circumstances, but the most competitive.


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