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Working out the documents needed for a self-employed mortgage can feel like banging your head against a wall at times.
Lets start off by saying that not all mortgage lenders will have a separate product range for self-employed and employed applicants. In other words, you won’t automatically be given an inferior mortgage product with higher interest rates, just because you’re self-employed.
However, an area that will differ from an employed applicant is the documents you’ll need to gather.
This is mainly due to how lenders will assess your income.
As income for self-employed applicants, such as Limited Company Directors and Sole Traders, tends to fluctuate more than an applicant in a permanent employed role, mortgage lenders will look at a longer period of income – usually one to three years’ worth.
These lenders may then look to assess your application based on an average of your income over this period.
Therefore we believe preparation is key – speak to a mortgage broker who is well-versed in self-employed mortgages to understand what specific documents are required based on your circumstances.
In the meantime, we’ve made this short guide for you.
Similarly to any mortgage application, you’ll want to gather the following:
1. Proof of ID (such as a passport or driving licence)
2. Proof of address (such as a driving licence, bank statement or council tax/utility bill)
3. Credit report (full report, not your credit score)
4. 3-6 months’ bank statements for all personal & business accounts held. This should include your proof of deposit
5. Any insurance policies held
Alongside this, there’s some specific additional documents needed for a self-employed mortgage you’ll need to gather.
These documents will be dependant on the structure of your self-employment. These are outlined below.
For Limited Company Directors, different lenders will calculate your income in different ways. Some will look at your salary & dividends, whereas others might look to use your net profits along with your salary.
For this reason we’d tend to gather:
1. Tax Calculations & corresponding Tax Year Overviews
2. Signed company accounts
3. Potentially an accountants reference and/or projections
You will not be able to use your payslips as proof of income, and directors loans will not be counted as income.
For Sole Traders, lenders will use your net profits from self-employment to assess affordability. To evidence your proof of income we would gather your Tax Calculations & corresponding Tax Year Overviews.
To be classed as a self-employed partner, you’ll need to own at least 25% of a business. Your income will be assessed using your share of net profits and the documents you’ll need to gather will be similar to that of the Limited Company Directors mentioned above.
For self-employed contractors, some lenders may be able to use your daily rate for affordability, rather than your net profits from self-employment, potentially allowing you to borrow more.
To evidence income, we’d tend to gather:
1. Contracts (current, historic & potentially upcoming)
2. Tax Calculations & corresponding Tax Year Overviews
3. Potentially an up to date CV
4. Signed company accounts (if operating through a Limited Company)
If you’re a CIS subcontractor, some lenders can base affordability on your gross income as shown on your CIS payslips.
To evidence proof of income we’d generally gather:
1. Tax Calculations & corresponding Tax Year Overviews
2. CIS payslips covering up to 12 months
3. Signed company accounts (if operating through a Limited Company)
At Rosehill, we take pride in building long-term relationships with our clients. We don’t see ourselves as just a mortgage broker, but rather a trusted partner who will be with you every step of the way.
At Rosehill, we take pride in building long-term relationships with our clients. We don’t see ourselves as just a mortgage broker, but rather a trusted partner who will be with you every step of the way.
Being self-employed, we always say preparation is key.
Rather than just gathering the documents needed for a self-employed mortgage when the time comes to apply for a mortgage, it can be a great help to monitor your self-employed income figures (or have your accountant draw up management accounts) to ensure you’re on track for the mortgage you need.
If you do not currently use an accountant, I’d strongly consider using one, as it can be helpful to have one in place from a mortgage perspective.
For Limited Company Directors we’ll be looking at your balance sheet too, as it’s all well and good if you’ve got turnover and profit, but if your liabilities outweigh your assets (i.e. the amount you owe outweighs the amount that you are owed), this can show the lender that your business could go bust at any point in time.
Liabilities outweighing assets can cause issues, as lenders want to make sure that your business is sustainable and stable.
The minimum deposit for a residential mortgage is usually 5%.
However, if you’re closer to the 10% deposit mark, saving a little extra to get to the next bracket of 10% could open up doors to more lenders and more competitive interest rates.
At each 5% increase in your deposit, to a certain level, you’re likely to see lower interest rates.
You’ll also have less risk of falling into negative equity if house prices were to fall, and you’ll be seen as lower risk to a mortgage lender.
We have many enquiries where people are heavily focused on their credit score – to these enquiries we actually like to say ‘ignore the score’, to help shift some of this focus.
Although your credit score could have an impact on your application, we’re more concerned with your full credit report to see if there’s any specific adverse credit issues.
We’d recommend sending a copy of your full credit report to your mortgage broker, however in the meantime here’s some tips on how to improve your credit score:
1. Firstly check your full report (or ask your mortgage broker to do so) to check whether there are any nasty surprises that you were unaware about. You may be able to resolve these in advance
2. Only spend up to 30%-50% of your credit card allowance if you can, then pay this off in FULL each month
3. Close any dormant accounts – these could potentially work against you when it comes to applying for a mortgage (lenders will see that you have available credit but will not know how you manage this credit)
4. Avoid applying for additional lines of credit (loans, credit cards etc.), as this will impact your credit score further
5. Paying down/off some debts can sometimes help
6. Make sure you’re registered on the electoral roll at your current address
We focus on building long-lasting relationships with clients.
We therefore charge a reduced fee for our existing client remortgages.
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As a mortgage is secured against your home or property, it may be repossessed if you do not keep up the mortgage repayments. Think carefully before securing any other debts against your home or property. The Financial Conduct Authority does not regulate commercial buy to lets and some forms of commercial mortgages. You may have to pay an early repayment charge to your existing lender if you re-mortgage
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