In a nutshell, being self-employed is not necessarily a bar to getting a mortgage in the UK. However, it certainly complicates matters because most self-employed people do not have a regular income that mortgage lenders can use to calculate the affordability of any offers they might put on the table.
Having just turned self-employed makes things even trickier. Indeed, some mortgage providers won’t even consider an application from you if you have switched from employed income to self-employment within the last three years.
According to Pinnacle Finance, a London-based firm of specialist mortgage brokers, people who have recently become self-employed will often find it hardest to secure a mortgage deal. This is why it is a good idea to get experts on your side who deal with specialist lending services day in and day out.
Not only can it save a lot of time avoiding enquiries with mortgage lenders who are never going to make an offer to you but it can also mean being able to secure a better deal. After all, you will need to access a niche part of the mortgage market if you have become self-employed within the last year or so.
Some self-employed people are so pleased to get an offer of a mortgage at all that they fail to shop around properly. Effectively, this is what a brokerage service offers you – a chance to explore the whole of the UK mortgage market in one fell swoop.
Bear in mind that mortgage lenders will want to see evidence of your income, too. As a self-employed person, this will usually mean giving mortgage providers access to more financial information about yourself than would usually happen if you had a job.
As such, brokers can be beneficial because it means only handing over these records once, not to every mortgage provider you happen to apply to.
What you are likely to need is your self-assessment tax calculation – not the full return but the last few years of tax overviews. This will allow your proposed lender to calculate your average income and to see how consistent it is.
If you have wildly different self-employment earnings from year to year, then expect the lender concerned to have to factor in a greater degree of risk in whatever mortgage offer they subsequently make.
Note, too, that if you run a limited company or work as part of a partnership, then the financial summaries of your business will also need to be handed over. This will include any dividend payments you might have received.
Another thing that business owners might need to supply is contractual arrangements with customers. This can be evidence that you are expecting the business to earn income at a given rate.
Freelancers often don’t need to produce these sorts of documents but if you are an IR35 contractor, then current and future working expectations may need to be shown to your mortgage lender.
Please note that joint applications from couples where one person is self-employed and the other is not are also possible.
Again, evidence of joint income and a strong credit score will be expected for at least 12 months and, hopefully, over a longer period, depending on the sum you wish to borrow.
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