Did you know more than 15% of the UK’s working population are self-employed? That’s around one-in-six people working for themselves. As the nation’s self-employed population continues to rise, with more professionals taking it upon themselves to improve their work-life balance by finding their own work, mortgage lenders are becoming more attuned to the needs of self-employed mortgage applicants.
If you are self-employed and you harbour aspirations to secure a mortgage to buy your own home, read on as we outline six important tips to increase your chances of getting on the property ladder.
Keep your SA302 forms somewhere safe
If you are required to file self-assessment tax returns by the end of every January, you will receive SA302 forms upon completion of your tax return. SA302 forms are the minimum requirements that most mortgage lenders need as proof of your annual income. That’s because it is the salary you are formally declaring with HM Revenue and Customs (HMRC). If you haven’t already, it’s a good idea to create an online tax account with HMRC so that you can view your documents online via the Government Gateway.
Be mindful of your length of trading
It’s frustrating that employed mortgage applicants only need to have been in a full-time PAYE job for only a month to be eligible for a mortgage. Contrast that with some lenders which require self-employed applicants to have at least three years of accounts and trading history, you can see why mortgaging – and even remortgaging – can be stressful for the self-employed. As a rule of thumb, most lenders will accept two years of self-employed accounts, so if you are newly self-employed you may wish to bide your time until you have enough proof of income – or seek a broker that’s prepared to lend to those with one years’ accounts or less.
Consider using a broker instead of visiting a high-street bank
Some mortgage lenders have a greater appetite for risk than others. This means that some may be less likely to lend to self-employed applicants. If you want to avoid the disappointment of being turned down for a mortgage, a good starting point is to use a broker to find a lender that’s on your wavelength. For example, Trussle compares mortgage rates and deals online from as many as 90 lenders and can point you in the right direction of specialist lenders, particularly if your financial circumstances are less cut and dried than the average person. This comparison service does this by searching all potential mortgages and subsequently presents you it’s findings, making this task easier. Equally, the site offers guidance on any potential questions you may have.
Take care of your credit rating
It’s important that you have a solid credit history, both individually and as a business owner. Prospective lenders will run credit checks on you and your business to uncover any issues such as unpaid or defaulted debts. If you are unsure of your credit score, there are plenty of credit check services out there that can outline how lenders are likely to view you before obtaining an agreement in principle.
Weigh up the pros and cons of reducing your taxable income
There are various ways of minimising the tax you pay on your self-employed income. Many of which are perfectly legal and recommended by chartered accountants. However, in the context of a mortgage application, reducing your taxable income can work against you. Lenders will use your taxable income, outlined in your SA302 forms or certified accounts, to calculate how much they are prepared to lend to you. By reducing your income using expenses and tax reliefs, you may reduce the size of your tax bill, but it can also limit the size of property you wish to purchase. Lenders will usually lend no more than 4.5 to 5 times your annual gross income.
Register for the electoral roll
If you are not yet registered to vote at your current address, make sure you get on the electoral register. Most lenders include this as part of their background checks and are likely to be more suspicious about your application if you aren’t registered.
Although it is typically tougher to get a mortgage as a self-employed worker, with a little forward planning you can make your dream a reality.