What You Need To Know About Getting a Mortgage When You're Self-Employed
19 November 2021
If you’re self-employed and wondering if you can get a mortgage, David Lauder has the information you need to know!
Prior to the Covid-19 pandemic, mortgages for the self-employed were commonplace – the only difference to an employed applicant’s assessment was certain documents required to evidence income. However, the pandemic has caused lenders to tighten their criteria, to assess the effect on self-employed people and how sustainable their business is.
Good news is, mortgages for the self-employed are becoming more readily available. Different lenders will have different criteria, including required documents and your self-employed status, but the below gives a general overview of what to expect.
Sole Traders and Partnerships
The majority of lenders will want at least two years’ self-assessment tax returns showing level of income, along with an up-to-date tax summary overview. The golden figure they’ll refer to here is the Net Profit Figure, and lenders will, in most cases, work from the average of the previous two years to determine your level of borrowing.
This is assessed differently – lenders will still look at the last two years, but usually base figures on a client’s salary taken as a Director, paired with dividends. Some lenders may consider salary with net profit instead, however, you should seek mortgage advice to see what is most suitable for you. Lenders will either use the last two years of self-assessment tax returns, or the last two years of business accounts, with a Chartered Accountants reference – the figures used must be no more than 18 months old.
Lastly, a more regular feature of assessment for all self-employed applicants is that lenders will likely request the last three months of business bank statements to confirm strong trading, consistent with the figures you have provided.
In summary, no case is identical, and different lenders will assess self-employed status in different ways.
For more advice contact a mortgage adviser who can assist you and provide you with the best option for your personal circumstances.