What Income do Mortgage Companies look at Self-Employed?

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What counts as Self-Employed?

If you earn more than 25% of your income through Self-Employed business activities, you will be considered as Self-Employed for the purposes of your mortgage application. 

  • Sole Trader/ Freelancer
  • Contractor
  • Limited Company Director or Partner owning 25%+

Although Limited Company Directors are considered as employees by HMRC, within the mortgage industry they are considered as Self-Employed workers. This is largely due to the potential for fluctuation in their income. 

Proving your income

Mortgage Lenders will request evidence of a more substantial earning history for Self-Employed mortgage in order to mitigate some of the perceived risk that is innate in a fluctuating income.

This often means that you will need to show documented income covering the past two to three years, although some lenders will only require one year. We can help you to find the right lender based on your trading history and individual circumstances. 

The type of Self-Employed business activities that you participate in will determine the exact income that will be used by Mortgage Lenders and how you evidence that income:

Proving your income as a Sole Trader

If you are a Sole Trader your personal income from the most recent one to three years will be averaged to find a more realistic annual income. You will need to submit:

  • Certified accounts
  • Tax Calculations and Tax Year Overview from HMRC forms

Proving your income as a Contractor

Contractors’ incomes are treated differently by different lenders and depending how they are paid. For example, if you are on a standard day rate, some lenders will use an annualised version of this, similarly to employed people’s salaries. Otherwise you will be treated similarly to a Sole Trader. Either way, to prove your income you will need to submit:

  • Certified accounts and Tax Calculations and Tax Year Overview from HMRC
  • Contract showing your day-rate (if applicable)
  • Proof of continued ongoing availability of work

Proving your Income as a Company Director

Most Mortgage Lenders will consider your personal salary and dividends payments as annual income, although a small number will use your retained profits in the affordability calculation.

Partners will need to own 20-25% and your share of the net business profits will be used to calculate your affordability.

To prove your income payslips will not be acceptable. You will instead need to provide the following when applying for a mortgage:

  • Certified accounts, Tax Calculations and Tax Year Overview from HMRCs and HMRC tax overviews
  • Business banking statements may be requested
  • Additional business plans may be requested for those with a shorter trading history or poor credit rating

Do Self-Certified Mortgages still exist?

Self Certification mortgages were banned in 2009 by the Financial Conduct Authority as a result of unethical lending practices. It is no longer possible to obtain a mortgage without proof of income.

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

There is no difference in the mortgage application process for Self-Employed applicants. You will have access to the majority of mortgage products that employed applicants have, so long as you can provide proof of income.

Self-Employed applicants will benefit from preparing in advance of their application, part of which is visiting a Mortgage Broker like ourselves, to ensure you approach the right type of lender for your circumstances.

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

Preparing ahead of your application can often be a key factor in successfully securing a mortgage offer. Here are some suggestions that can improve your chances of approval:

  • Get your finances in order by ensuring that accounts to be used in support of your application are authorised by a certified accountant
  • Save up! If you can afford to offer more than the minimum deposit requirement, both your chances of being accepted and the rates available to you will improve
  • Work on improving your credit score:
    • Make sure you’re on the electoral roll (for your current address)
    • Correct and update all details currently held on your credit file 
    • Pay your bills in a timely manner and repay debts
    • Minimise the use of existing credit facilities
  • Speak to Heritage Mortgage Brokers – we can help you to prepare in advance of your application as well as reviewing your circumstances against a wide section of criteria across the mortgage market, to ensure that we find the most suitable lender for you.

Why Heritage Mortgages?