Are you self-employed and wanting to buy a home, but don't know where to start? Don't worry, you won't be alone, and that's why we're here to help. In this blog we provide ways for you to improve your chance of getting approved for a mortgage.
There are 4.8 million self-employed people in the UK, and amongst these many think that because their income is intermittent, they won't be able to get a mortgage. This isn't necessarily the case, so don't assume it straight off the bat. First read our tips and apply all you can in order to increase the likelihood a lender will approve you for a mortgage.
What you can do
There's a long list of items which you can follow if you are self-employed and worried you may not be able to buy your dream home because you can't get a mortgage. Take a look at the following:
- Mortgage adviser: mortgage acceptance will depend on different things for different lenders. An adviser is ideal to find you a good mortgage
- Detrimental credit entries: check your credit file for any entries which could cause it harm, especially if there could be some you aren't aware of
- Electoral register: register to vote if you haven't already. Not sure if you're registered? Check with your council
- Credit record: your aim is to have a perfect credit record, as the closer to perfect it is, the better the mortgage rates that will be available for you. To help towards this, pay everything on time, and set up direct debits as this will ensure prompt payments
- Don't touch payday loans: these will never look good on your record, especially because they are a good indicator of financial difficulty. If you've used a payday loan recently, it's likely your lender will reject your application just because of this
- Credit checks: you don't want many credit checks carried out, so be careful to limit them. Just bear in mind that insurance comparison websites run multiple checks
- Credit card limit: try to avoid reaching your credit card limit. If you're close, spread it between another card as well
- Paying credit: if it's an option for you, set up your credit card so it automatically pays itself off in full every month. Avoid making minimum payments off your credit card
- Deposit: collate your deposit money early, particularly if your family is helping you
- Accountant: talk to your accountant if you're planning on using business funds towards your mortgage or deposit. It's best to take regular withdrawals rather than one lump sum
- Documents: prepare the selection of documents your lender will need. This includes ID, proof of address, limited company accounts, tax returns, bank statements, life insurance and more
- Contractor: if you're a contractor, you'll need to provide the last year of contracts, fully signed by all parties. Your contracts need to clearly state your daily rate
- Mortgage agreement in principle: you'll always be a preferable buyer if you have a mortgage agreement in principle ready. Some estate agents won't even let you view a house without one
First-time buyer tips
If you've never bought a property before, we know the whole idea and process can be very daunting and unknown. If you're self-employed or a contractor, it can be even more so. Here's some advice to help you along:
Own a limited company
Are you a director of a limited company? Your lender will need to see the most recent year's company accounts or personal tax return. Sometimes this won't be enough, as you may find your mortgage lender asks for 2 or 3 years' accounts.
If you're a sole trader, you will need to provide your lender with 12 months worth of finalised accounts, or an SA302 from HMRC which has a date in the last 18 months.
Contractors & freelancers
Are working through a limited company as a contractor or freelancer? You'll need to provide your mortgage lender with your current contract as well as any contracts over the past 12 months. If you're unable to show this, you should be able to use your personal tax returns or company accounts.