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Mortgages for the self-employed: A guide on what you need to know

Securing a mortgage as a self-employed professional was once a much more difficult task than it is today. Nowadays, banks and building societies show a greater understanding of self-employed home buyers looking for a mortgage and some even market specific self-employed mortgages. Of course, there are differences for Pay As You Earn (PAYE) workers securing a mortgage but there are plenty of options out there.

Data published by Statista reveals that as of December 2023, there are 4.37 million self-employed workers in the UK. The number of self-employed workers in the UK has grown steadily since the turn of the century when there were just 3.2 million self-employed workers. The steady increase has been attributed to multiple factors, not least the growing ability to create income streams through online entrepreneurship.

This guide will cover the fundamentals of mortgages for self-employed people in the UK, including the self-employed mortgage process and the option of using a mortgage adviser who specialises in self-employed mortgages.

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Did you know….

A UK bank conducted research in 2021 that found just over one-third of self-employed renters didn’t think they would ever be able to buy their own home.

This isn’t surprising given that it was known to be more difficult for self-employed workers to get a mortgage in the past. But thankfully, it’s often not the case today!

Understanding self-employed mortgages

A self-employed mortgage is typically the same as any other residential mortgage but has been marketed to let self-employed workers know that these lending products are available to them. In that sense, there isn’t a type of mortgage exclusively used by self-employed people. It’s just a way for lenders to let self-employed people know that their residential mortgage product can be accessed when they have self-employed income or irregular earnings.

Proving income stability is often the most significant challenge self-employed people face when applying for a mortgage. Unlike those applicants who are employed by a company, self-employed workers won’t receive the same amount of income each week or month. As such, it’s important to be able to provide evidence that they have received a certain level of income for an extended period before applying for a mortgage and possibly be able to prove that they will continue to receive the same income in the future.

Being able to provide evidence of a stable and reliable income is important as the lender must ensure the self-employed applicant can meet their mortgage repayment obligations. To provide proof of stable income, self-employed workers must show their earnings through their Self-Assessment tax returns. The number of returns required can vary between lenders, but it’s not impossible to be approved for a mortgage with less than one year of accounts and no tax return to date. In these instances, the self-employed worker may need to prove their income with other documents, such as bank statements and even agreements or long-term contracts with their clients.

Essential discussions with your mortgage adviser

An experienced mortgage adviser can help self-employed people find the most suitable mortgage for their needs and personal preferences. There are even mortgage advisers who specialise in the self-employed mortgage market and may have industry connections and access to exclusive mortgage deals.

If you decide to engage a mortgage adviser for your search, you should expect your initial consultation to include a discussion on:

  • Self-employed duration
  • Your business structure
  • Your income and expenses
  • Any upcoming changes to your business or income
  • Your credit history
  • Your outstanding debts
  • Your future plans
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Mortgage options for the self-employed

Self-employed individuals have the flexibility to explore residential mortgages tailored explicitly for them. Additionally, they can explore other residential mortgage options that might not be specifically marketed for self-employed individuals. Occasionally, these options might be identical products but presented differently, though this isn't always the case.

As with any other residential mortgage, self-employed workers can choose from fixed and variable-rate mortgages. Each type of mortgage has pros and cons, and the best option is usually based on immediate economic forecasts and personal circumstances which your mortgage adviser can help you understand. However, identifying the most suitable mortgage should also consider personal preferences, long-term financial goals, plans and risk tolerance. For example, someone with a low-risk tolerance may choose the security of fixed repayments for an extended period rather than a variable-rate mortgage.

Once the right type of mortgage has been identified, these mortgage options should be compared. Although comparing interest rates is essential, it’s also important to compare the other terms of the mortgages, such as repayment terms, early repayment charges, overpayment limitations and more. You might even have the benefit of comparing extras, such as cashback on conveyancing and moving costs, a reduced rate or something else.

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Tips for a successful self-employed mortgage application

Some of our tips to prepare well for your self-employed mortgage application are:

  1. Take time to check and improve your credit rating
  2. Consider saving a larger deposit to reduce the amount you need to borrow
  3. Demonstrate a steady or increasing income through tax returns and chasing invoices on time
  4. Consider delaying an application if you’re close to the end of the tax year and could soon include another tax return as evidence
  5. Get advice from an experienced mortgage adviser who has a track record of helping self-employed workers

Our team are on hand should you wish to discuss your self-employed mortgage options. We’ve helped scores of self-employed workers, even with limited income evidence, varying income, multiple income sources and even poor credit history. We will always put your individual needs first to find you the most suitable self-employed mortgage deal.

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