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How Does Being Self Employed Affect Your Chances of Securing a Mortgage?

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As a self-employed individual, you may be wondering if your employment status will affect your ability to secure a mortgage. The good news is that being self-employed does not necessarily mean you cannot get a mortgage. However, you may face some additional challenges when applying for a mortgage and will need to provide more evidence of a reliable income.

One thing to keep in mind is that there is no specific product called a “self-employed mortgage.” You will be applying for the same mortgages as anyone else. In the past, there was a mortgage product known as a “self-certification mortgage” which allowed self-employed individuals to declare their income without proof. However, these mortgages were banned in 2014 due to concerns that customers were being approved for mortgages they couldn’t afford.

When applying for a mortgage as a self-employed individual, you may be required to provide additional documentation to prove your income, such as two or more years of certified accounts, SA302 forms, or a tax year overview from HMRC for the last two to three years. If you are a contractor, you may also need to provide evidence of upcoming contracts.

It’s important to note that being self-employed does not mean you will have to pay higher mortgage rates. If you can provide proof of your income and a mortgage lender is satisfied that you can afford the repayments, you should qualify for the same mortgage rates as someone who is in a permanent, full-time role. Your interest rate will be determined by factors such as your credit score and the size of your deposit.

However, it’s true that self-employed individuals may face tougher rules from lenders, particularly in the wake of the coronavirus pandemic. Some lenders may now require deposits as high as 40% from self-employed mortgage applicants.

If you’re self-employed and looking to secure a mortgage, there are steps you can take to improve your chances of getting a good deal. These include:
• Gathering your SA302 forms: When you file your tax return, HMRC will create a SA302 form which shows your income tax calculation for that year and evidence of the earnings you submitted. Lenders like to see three SA302 forms as evidence of self-employed income.
• Getting an accountant: Lenders prefer to see accounts prepared by a qualified accountant as evidence of your income. However, make sure your accountant doesn’t minimize your income in order to reduce your tax bill, as this will affect how much you can borrow with a mortgage.
• Saving the biggest deposit possible: A large deposit will open up more mortgage deals for you to choose from and may make it easier for you to find a lender that is more favorable to self-employed applicants.
• Boosting your credit score: A good credit score is essential for getting the best deal on a self-employed mortgage. There are steps you can take to improve your credit score, such as paying your bills on time, keeping your credit card balances low, and correcting any errors on your credit report.
It’s also helpful to work with a mortgage broker or lender that has experience working with self-employed individuals. At Active Mortgages, we understand the unique challenges that self-employed individuals may face when applying for a mortgage and can help you navigate the process and find the best possible deal.

In conclusion, being self-employed does not mean you cannot secure a mortgage, but it may require some additional steps and documentation. However, by gathering your SA302 forms, getting an accountant, saving the biggest deposit possible, and boosting your credit score, you can improve your chances of getting a good deal on a self-employed mortgage.

If you’re self-employed and thinking about buying a home, Speak to an Active Adviser today and take the first steps towards homeownership.

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Self Employed Mortgage Guide

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Book a call with one of our team to talk about your requirements.