Joint Mortgage When One Applicant is Self-Employed

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Joint Mortgage When One Applicant is Self-Employed

Taking out a joint mortgage can be a great way to boost your borrowing power, but it can be a bit of a headache when it comes to working out mortgage eligibility when one of you are self-employed.

It’s just a case of taking that little extra care in prepping your mortgage application just to make sure you’ve got the best chance of success.

Overview of topics being discussed:

Can you get a joint mortgage when one applicant is self-employed?

The simple answer is yes, you can absolutely get a mortgage where one applicant is self-employed.

That being said, it’s not usually as straightforward as two applicants who are employed. Employed applicants usually have more of a steady income, so assessing affordability is made very easy for lenders. They can usually just work off of the latest three to six months’ payslips and a P60.

Income for self-employed people has more of a tendency to fluctuate when compared to employed people, so lenders tend to ask for two to three years’ worth of income figures when assessing your mortgage application, so you can see where this can cause complications in comparison to an application where both applicants are employed.

How much can I borrow when one applicant is self-employed?

If any of the applicants on an application are self-employed, it’s not uncommon to see one lender lend you X amount of money, and another lender lend you a completely different amount of money. This is because criteria varies from lender to lender when assessing that self-employed income.

As mentioned already, a lot of lenders will look to average two to three years’ worth of your income, but there are some lenders out there that are happy to use your latest year’s income or even if you only have one years’ accounts.

Criteria differences for self-employed applicants don’t stop there either.

For example, for Limited Company Directors, most lenders out there will look to use your salary and dividend figures when assessing your income, but there are some lenders out there that will use your share of company net profits plus your salary.

Using company net profits plus your salary can really help particularly if you are a growing business and you tend to keep more money in the business.

Speak with a mortgage broker (we’re always happy to help!) to see how much you can borrow, based on your specific circumstances, however a rough guidance would be to multiple your joint earnings by 3 to 5.

How much deposit will I need when one applicant is self-employed?

As you usually find, a larger deposit generally will get you more preferable interest rates. Generally speaking, up to a certain level, every 5% increment in your deposit will open the door to more preferable rates.

However, this doesn’t mean that you actually need a large deposit, even if one of you are self-employed. 5% deposit mortgages are still available.

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What documents will I need when one applicant is self-employed?

Along with the standard documents you’ll need, the self-employed applicant will want to gather two to three years’ income figures, although some lenders may accept your first years’ accounts.

A short summary of documents to gather would be as follows:

Limited Company Directors

Limited Company Directors will want to gather evidence of salary, dividend & company profits over the latest 1-3 years.

For this reason we’d tend to gather:

Sole Trader or Freelancer

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.

Partnerships

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.

Contractors

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. You’ll want to gather the same documents as mentioned for sole traders/freelancers above, along with your current, past any upcoming contracts you have.

For Construction Industry Scheme (CIS) contractors, we’d look to gather between three and twelve months’ payslips.

Does the mortgage HAVE to be in joint names?

The simple answer is no.

It is possible for one of you to be on the mortgage where both of you are buying a home, but it’s just got to stack up with the lenders affordability.

If the mortgage is still affordable in just the employed person’s name, this can make the case a little less complicated, particularly if the self-employed applicant doesn’t have a long history of self-employment.

That being said, if only one of you are going to be on the mortgage, that doesn’t necessarily mean that only one of you are going to be on the deeds to the property – this will be covered in the legal side of the process and will be something that you want to talk to your solicitors about.

You may want to look up the ownership structures of ‘joint tenants’ and ‘tenants in common’.

Will I have a worse mortgage product if one applicant is self-employed?

Generally speaking, this isn’t the case.

However, you might find that the self-employed applicant doesn’t meet affordability or doesn’t fit criteria with the lenders offering the lowest interest rate, for example.

This doesn’t mean that you’re going to be stuck with a very quirky lender with ultra-high interest rates, just because one of you is self-employed.

There are still lots of lenders out there that have different criteria when it comes to self-employed applicants, so it’s good to speak with your broker (hopefully ourselves) and they will be able to advise you accordingly, based on your specific circumstances.

At the end of the day, lenders still want to be pretty competitive with each other, so you may find that you still get a competitive mortgage product.

Joint Mortgage When One Applicant is Self-Employed