You may have heard that you would need at least 3 years accounts and a huge deposit to secure a mortgage, so feel that you won’t go far with only 1-year self-employed history and 5-10% deposit.
In addition, as a freelancer, you may not have a regular income or as an LLP partner (e.g. doctors, solicitors), you may not have much control over the accounts.
The good news is that many lenders recognise how self-employed people work and can offer flexible self-employed mortgage criteria or even bespoke mortgage deals.
Self-employed mortgage criteria
Although the self-certification mortgage, which once permitted self-employed people to obtain a loan without needing to prove their income, has been scrapped, this does not make borrowing any less viable for the self-employed. Indeed, provided you meet certain income criteria and can provide proof of your earnings, the chances of being approved for a mortgage are no less than someone employed by an organisation.
You CAN possibly get a mortgage, if
- You have only been trading for 1 year;
- Your latest year shows lower income than the previous year(s);
- You only took out the minimum salary and dividends to minimise your tax liability;
- Your income hasn’t been consistent during the year (e.g. by being a freelancer);
- You have recently changed from being a sole trader to a Ltd company director;
- You have recently become a partner in a solicitor firm after being their employee;
- Your contract is on zero-hour or commission only basis;
- As a contractor, you have been working on an hourly or daily rate basis for less than a year
However, in order to answer your question “How much can I borrow?”, we will need to look at your outgoings, credit history and other aspects as well.
Proof of income for self-employed
The proof of income depends on your self-employment type and the chosen lender’s self-employed mortgage criteria. It may be self-employed accounts, tax calculation and tax overview, accountant certificate or even your contract(s).
You may remember being asked for SA302s and waiting for them in the post for 2 weeks after calling up HMRC. The SA302 has been renamed to tax calculation and you (or your accountant) can download it from HMRC’s website, which is more convenient.
A new form is called tax overview, which shows your tax liability per year and whether it has been paid. You can download the tax overview document from HMRC’s website. When lenders ask for tax calculations, they normally ask for the corresponding tax overviews as well.