A Guide to Getting a Mortgage When You Are Self-employed

13.07.22

Getting a mortgage when you’re self-employed isn’t as easy as it is for those who are employed, but it isn’t impossible. In this post, we’ll look at what it takes to get a mortgage as a self-employed person in the UK, and how you can be self-employed, yet still be seen as a better risk for lenders. 

What Counts as Self-Employed? 

According to HM Revenue and Customs, you’re self-employed if you run your business yourself and are responsible for its success or failure. You can decide whom you want to work for and when the work will be done as well as how you’ll go about completing the task. If you need help, you can hire extra people and you’ll be the one responsible for paying their wages. And, of course, you’re the one who carries the can if things go wrong. Apart from that, you’re making your profit after charging an agreed price for every project you tackle.

Interestingly, you get all the freedoms of the self-employed yet are seen as an employee when you work through an umbrella company like Evolve CS. You’ll even have payslips to offer your lender as proof of earnings.

Self-Employed Mortgage Lending: The Challenges

When you take out a mortgage, the property acts as collateral for your loan. So, if you default, the lender can recover its funds by selling the collateral. So far, so easy. So why do banks get sticky about lending to the self-employed? The truth is simple. Banks don’t want to be placed in a position in which they must sell your property to recover their loans. They’d far rather see you pay it off (plus interest). 

As a result, lenders will look at your past earnings, and they’ll want guarantees that show you’ll be in a position to pay off your mortgage in future. If you’re employed, your present and future earnings are predictable, but if you’re self-employed, you’ll have to go the extra mile to show that you’re able to meet mortgage payments. 

Needless to say, this means that you have to be able to prove your ability to earn money, both now, and in the future. Without these proofs, you won’t easily get a mortgage.

How to Get a Mortgage When Self-Employed

When approaching lenders, you will need to be prepared. They will expect to see two or more years’ worth of certified accounts. They’ll want to see your SA302 forms and the results of HMRC reviews covering the same timespan. And, since your past financial performance may not reflect your future performance, they’ll want to see evidence that proves you have upcoming contracts while looking at your business’s profitability. 

That’s over and above the usual requirements like bank statements, financial liabilities (accounts), proof of ID, and proof of address that all loan applicants have to furnish. When you work through an umbrella company, on the other hand, you’ll have payslips and you won’t have to provide as much documentation as those who are completely self-employed.

Do Self-Employed People Have to Pay Higher Mortgage Rates?

Lenders set their cost of credit based on perceived risk. If you look risky to lenders, they’ll either shy away or they’ll offer you a deal, but at a higher rate than the one they apply to normal workers who have an employer. 

However, if you have a great track-record for profitability and proof that things will continue to go well in the future, you might even get a lower rate. Getting a mortgage when self-employed is more difficult than it is for regular employees, but a lot depends on your ability to prove past earnings and your ability to generate future earnings. 

How to Get a Self-Employed Mortgage

As we’ve noted, having up-to-date paperwork and a good earnings history helps the self-employed to get better mortgage deals. If you have an “employer” things are a great deal easier, and though you’re independent, it’s possible to have one. When you work through Evolve CS, you’re still your own boss, but your umbrella company is seen as your employer. You’ll have payslips to show to lenders, and all the accounting related to your contracts will be complete and up to date.

Aside from having an “employer” in the form of your umbrella company, you can also improve your chances of getting a favourable mortgage deal by having a good credit score and consistent working habits. 

Remember that lenders are looking for steady income, so don’t allow long gaps between contracts. Keep other debts as low as possible to show that you’re ready to handle mortgage repayments, and be willing to offer a higher down payment as proof of your solvency.

Keeping your bank balance healthy is a plus too. Lenders will want to know if you have the ability to survive financially if there are unexpected expenses. Your bank statements offer them the clues they’re looking for. Remember: they’re looking at affordability and they’ll compare your net income (rather than your gross income) and savings to the repayments you’ll have to make once you have a mortgage. 

Evolve CS Makes Mortgages Easier

While it’s certainly possible to get a mortgage as a self-employed person, it’s a great deal easier with an umbrella company on your side, and if that umbrella company is Evolve CS, you get the inside track. We work with lenders who are open to mortgages for the self-employed, and we’re happy to refer our contractors to them for further assistance. Hoping to buy your dream home? Handle your contracts through us and get access to better opportunities to raise credit. It’s just one of the benefits our self-employed contractors enjoy. Contact us today for more information about getting a mortgage when you are self-employed.

 

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