What Income do Mortgage Companies look at if you are Self-Employed
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What counts as Self-Employed?
You need to own at least 20-25% of a business in which you use as your main source of income to be deemed Self-Employed. You can be a sole trader, part of a partnership, or even a contractor.
How do I prove my income?
You will need to prove your income if you are Self-Employed to your lender in order to access a mortgage. If you are not on a PAYE payroll then you will need to gather the documents needed in order to prove your income to a lender.
You will also need to provide your passport, driving license, council tax bills, bank statements and utility bills to your lender. Mortgage lenders want to ensure that you can afford the repayments on your mortgage that you are committing to.
As someone who prefers to work alone you will need to declare your earnings on a self-assessment form, it can be a good option to use a chartered accountant for this. Your tax will in turn be calculated by HMRC and then you will request a Tax Calculation (SA302) form outlining your income and the tax you have paid. You will also need the corresponding Tax Year Overview.
You need to provide your share of net profits alongside proof of this revenue too. If you have any retained profits in the business make sure you check if the lender accepts this as a form of income as some lenders do not.
Limited Company Director
You need to show mortgage lenders proof of your Director’s salary and dividends you have received and stated on references or any business accounts. Or, we may want to use your share of net profits and salary instead, depending on your personal circumstances.
You need to provide past contracts to your lender and proof of any upcoming work too. If you are on a day rate a lender will take your rate and multiply that by five, working days per week, and then 46, working weeks of the year) to estimate an annual income.
How do I go about getting a mortgage if I am Self-Employed?
You will need to ensure that you prepare all of your documents before approaching a lender, it is important to come across as organised to a lender. You will need to use a qualified or chartered accountant to help prepare your accounts as lenders look for your accounts to be signed off legitimately.
It can be good to speak to your accountant before applying for a mortgage as if they minimise the amount of tax you pay this can sometimes have an adverse effect.
You need to make sure that your finances are also in order. If you have debts owed or credit cards that are outstanding, then a lender will question this, and it can affect the mortgage rates you will be offered. You need to ensure your credit score and credit rating are as high as they can be.
You should ensure that your data is up to date on the electoral register and that you have closed any unused accounts. You can be tied to old housemates too if you do not keep your addresses up to date.
How do I improve my chances of getting my mortgage application approved?
There are a number of ways in which you can improve your chances of hearing a “yes” but mostly it is about being organised. A lender wants to know that you can borrow money and pay it back reliably and that you can handle yourself well. If you approach a lender without the correct documents and your finances a mess, then they are going to likely deem you as a high risk borrower.
You should approach experts for support and advice, they are there for a reason and the mortgage market can be a crazy place. Mortgage Brokers and accountants are very useful during the mortgage application process as someone who is Self-Employed.
Saving up for a bigger deposit can be very advantageous especially for Self-Employed mortgage applicants. Lenders who are given a larger deposit are more likely to offer exclusive rates or overlook small blips on your credit file.
Ensure to apply at the right time, you will need a certain number of accounts to prove your income is reliable. Lenders can ask for up to three years’ of accounts and sometimes only specialist lenders will accept any less.
How can a Mortgage Broker at Blue Pepper Mortgages help me?
Here at Blue Pepper Mortgages, we have access to the independent mortgage market meaning we can access mortgage rates and interest rates that high street lenders may not be able to match. We are an appointed representative of PRIMIS Mortgage Network. PRIMIS Mortgage Network is a trading style of First Complete Limited which is authorised and regulated by the Financial Conduct Authority meaning we are qualified to give the advice you seek.
We can help let you know what paperwork you need to gather as well as tailoring our advice to your specific circumstance. As Self-Employed people it can be daunting and stressful when it comes to mortgages. We are here to be flexible around you and to help guide you to an accepted mortgage application with the right lender for you.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE