A person who is self-employed earns their income by working for themselves, through owning a business or freelancing. A self-employed individual can be a sole trader or within a partnership,however they must own at least 25% of the business. They do not work for an employer who pays them a consistent wage/salary.
If you are self-employed you can still apply for a mortgage. It can potentially be more difficult in certain aspects as proving your income can be harder to do; although if you have the right documents and help it can be done. You have to be able to show how much you earn in order to provide the lender with a clear view of whether you will be able to keep up with costs.
How many years accounts do I need?
Most lenders are likely to give a mortgage to a self-employed individual if they have been working self-employed trading for at least three years and if they can provide two years of accounts and self-assessment tax returns (SA302s). Some lenders can be more flexible, though it is better to be fully prepared so you have a higher chance of success. Although one years worth of accounts or SA302 and tax year overviews are acceptable to some lenders. Self employed 95% loan to value mortgages ( 5%deposit) mortgage, as we are whole of market we have access to lenders that potentially lend with a 95% mortgage for self employed even with 1 years accounts
At View Finance we love slightly more complex cases. So what happens if your a first time buyer and self employed.There reality is the options are a little more restricted depending on the lender. We are whole of market and have a lot of years combined of doing mortgages and we all have that "friend" that knows a bit about everything but unless they are a qualified mortgage advisor that has been doing mortgages for as long as we have I reckon we will be able to point you in the right direction.
When you are employed its quite easy for a lender to work out what your income is, you will have an employment contract, wage slips normally a regular amount that is paid into you account every month/week so the lender can quite comfortably work out what you will earn in a year and whats affordable. They have a responsibility to do this and so do Mortgage advisors. For a self employed person is a little harder to work out what they will earn as it will vary they may have good weeks and bad weeks, what happens if you want a holiday? This is why 1 full year is required as a minimum without this it is likely it wont happen. The fact that you are a first time buyer has little impact in this scenario they reality is they lender will what to see what you earn whether you are a first time buyer, home mover or Re mortgaging.
1 Years accounts are possible with certain lenders you will need to make an enquiry to find out if you are eligible for this, The amount that you can borrow will also depend on your income "total received" for a sole trader and normally salary and dividends for a limited company director ( some lenders will use retained profit) and this can be with as little as a 5% deposit. If 5 or 10% deposits are not possible the minimum deposit for 1 years self employed is 15% and this would normally be a specialist lender.
Generally speaking most lenders and high street lenders will require a minimum of 2 or 3 years worth of accounts for self employed mainly due to the reasons above some can move from this time frame if for example you are close to your year end and have exceeded the yearly income from the previous year will consider this information documented by your accountant or a reference
For a sole trader you will be required to provide your SA302 This is a document that confirms your tax return has been submitted formally to HMRC it will detail how your income is made up, ie self employed income or whether this is from dividends and employment or Land and property. This along with a tax year overview view is required ( this shows the tax paid ) This will show the income earnt for the year and will be used to calculate what you can borrow, along side your other commitments such as debts, dependents and various other factors.
Finally, these are some tips for improving your chances of acceptance:
- Keep your accounts, expenses, bills, etc. up to date
- Take help from an accountant if you need it – it’s far better to have your accounts and taxes organised
- Complete SA302s to prove your income
- Speak to a mortgage adviser! With the right information and assistance in finding the best lenders for you, you can’t go far wrong!