Mortgages for self-employed and contractors

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Are you self-employed looking for a mortgage?

It might be more difficult to arrange a mortgage if you are self-employed or contracting than it is when you are employed. The lenders will want to see that you have a steady income and are a reliable borrower, to do so, they will require more documents.

What counts as self-employed?

To be classified as self-employed, you would be sole trader, contractor, CIS contractor or director of a limited company if you own more than 25% of shares. A company director who gets paid only through the payroll but owns more than 25% of shares of the company is also classified as self-employed. Zero-contract employees will be classed as employed.

What to do to get a self-employed mortgage?

As a self-employed, you can access the same mortgages as employed and will have to pass the same affordability checks as everyone else. The only difference is that your income will be based on your self-assessment and a most likely average of the last 3 years taken into account.

What documents will I have to provide for a self-employed mortgage?

You will be required to provide documents to prove your ID, address, income and bank statements. It is important in any case that your credit history is good too.

  • Proof of ID – a copy of the passport
  • Proof of address – utility bill or council tax
  • 3 months of bank statements where your income is deposited

The documents to prove your income when you are self-employed include:

  • Last 3 years of SA302 – this is a document issued by HMRC when you do your self-assessment and covers PAYE and dividend payments
  • Last 3 years of tax overview -this document accompanies the SA303 and can also be downloaded from the HMRC self-assessment website
  • Some lenders might request SA100 instead of SA302 – this document included the set of accounts and is more detailed
  • If you are a contractor –evidence of a contract and/or futures contract might be required

In some cases additional documents might be required:

  • Business bank accounts statement, e.g last 6 months of business bank statements
  • Full set of business accounts
  • Accountant statement

If you have been a contractor for less than a year, it might be possible to use your contract and future income if your contracting job is similar to your previous employment. For example, you have been employed by a company as an IT Manager but decided to become a contractor and you are now an IT consultant with 6 months income and a contract for the next 18 months.

If you have been a director but not paying yourself wages and/or dividends and you have a surplus of money on your business bank account, the business profits can be used in some circumstances as your income.

How much deposit do I need?

It is advised that you have at least a 15% deposit. You can of course get a mortgage for more than 85% but the lenders can use stricter affordability calculations. Lenders will analyse your outgoings, costs (e.g. childcare), your spending patterns and if you have any loans, car hire purchase or credit card debt.

Will I be accepted for a self-employed mortgage?

It will depend on the stability of your income, your credit score, outgoings and deposit amount. The higher the deposit and credit score the better the outcome. Outgoings, loans and poor credit can impact your acceptance. Also, unregistered income will not go well with the lenders so make sure you declare all income drawn from the company accounts.

During the coronavirus, many companies have been adversely affected and the lenders are more cautious when it comes to lending to directors of companies that have taken relief loans like CBILS, BBLS or used a furlough scheme. Some lenders will also take the lower average of the last three years company accounts or latest year accounts, which might not be as good when it comes to affordability calculation.

We offer specialist advice to self-employed and contractors, helping you to choose the right mortgage with the right lender. We have access to over 90 mainstream and specialist lenders that accept self-employment applicants. We have experience with securing mortgages even in the most complicated cases.

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