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Self Employed Mortgage – What You Need to Know
If you’re self-employed and looking for a mortgage in Lancashire, Preston, or Southport, you might be wondering if it’s harder to get approved. The good news is, it’s not necessarily harder, but the process is a little different. Let’s go through what lenders look for and how you can prepare.
Is It Harder to Get a Mortgage If You’re Self-Employed?
Not really. The paperwork is different, but the principle is the same. Lenders want to see that you can afford the repayments. If you can show steady income and provide the right documents, you have just as much chance as someone who is employed.
What Income Do Lenders Look At?
For self-employed applicants, lenders usually look at your net profit before tax. That’s your turnover minus costs and expenses. This figure is what you pay tax on, and it’s the number lenders use to work out how much you can borrow.
What Evidence Will You Need?
Most lenders will ask for your latest two years’ tax calculations and tax overviews from HMRC. Some may also want to see two years of accounts or business bank statements. If you’re a sole trader, this is straightforward. If you run a limited company, there are a few extra details to consider.
Are You Self-Employed If You Own a Limited Company?
If you own more than 20% of the shares in your company, lenders will usually treat you as self-employed, even if you only take a salary and no dividends. This is important because it affects how your income is assessed.
What If You Take a Small Salary?
Many directors take a small salary and leave profits in the business. If that’s you, don’t worry. Some lenders will consider your salary plus retained profits, not just salary and dividends. This can make a big difference to how much you can borrow.
What If You Recently Went Limited?
If you were a sole trader and recently set up a limited company, most lenders will want at least one year of accounts under the new structure. However, if nothing else has changed, some lenders may accept your previous trading history without waiting a full year.
Does a Higher Profit Mean You Can Borrow More?
Usually, lenders take an average of your last two years’ income. For example, if you earned £15,000 one year and £25,000 the next, they’ll use £20,000 for affordability. Some lenders will use your latest year if it’s higher, but if your latest year is lower, they’ll use the lower figure.
Do You Need an Accountant?
No. If you’re a sole trader and do your own self-assessment, that’s fine. You just need to provide your tax calculations and overviews from HMRC. An accountant can make things easier, but it’s not essential.
What If You Haven’t Filed Your Latest Tax Return?
Even though HMRC gives you until January to file, lenders need your latest tax return to be no more than 18 months old. For example, your 2024 return will be valid until October 2025. After that, you’ll need to submit your 2025 return before applying.
Summary
Getting a self-employed mortgage isn’t harder, it just requires the right paperwork. Lenders want to see consistent income and accurate records. Whether you’re a sole trader, a company director, or recently switched to limited, there are options available.
Ready to Talk About Your Mortgage?
At Mortgage Advice Hut, we offer free initial consultations with no obligation. You can visit us at our Preston office or book a telephone or video appointment from the comfort of your home. We’re here to help self-employed applicants, first-time buyers, home movers, and anyone looking for remortgage advice in Lancashire and Southport.
Get in touch today and let’s find the right mortgage for you.
A MORTGAGE IS A LOAN SECURED AGAINST YOUR HOME OR PROPERTY. YOUR HOME OR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE OR ANY OTHER DEBT SECURED ON IT.
YOU MAY HAVE TO PAY AN EARLY REPAYMENT CHARGE TO YOUR EXISTING LENDER IF YOU REMORTGAGE.