When you're self-employed, it can feel like buying your own home will always be out of reach. But by tidying up your accounts and shopping around, you could be on your way to home ownership.
Working for yourself often means your income varies from month to month, and that can affect your mortgage application. Right now, 15% of the UK workforce is self-employed – with more people joining the freelance revolution year on year.
But more than 1 in 5 of these people have had their mortgage application rejected* because they can’t prove their future earnings to a lender’s satisfaction. No wonder so many people running their own businesses haven’t taken the first step up the property ladder.
36% of self-employed people haven’t applied for a mortgage in the last 5 years, because they expected to be turned down*
First, the facts
There’s no such thing as a ‘self-employed mortgage’. If you’re self employed, you’re entitled to the same rates as anyone else.
If you work for yourself, you just need to be able to prove you’re earning regularly. When a lender reviews your mortgage application, they’re just assessing how much you earn, and how likely you are to continue to earn this amount. Simple as that.
Proving your income
If you’ve been trading for at least 3 years, and have 2 years of business accounts or self assessment tax returns available, then most lenders will consider your mortgage application.
The longer you’ve been self-employed the better – if you can prove you’ve stayed in business for a while, you’re less of a risk for a mortgage lender. Some stricter lenders might want to see future income predictions to make sure you can afford your mortgage repayments.
Another thing that could help reassure mortgage lenders that your income is likely to remain stable is by sharing details about any regular contracts you have.
Any outstanding debts you have will be taken into account, so settle them where you can before applying for a mortgage.
Want to know how your mortgage will be calculated?
Improving your chances
If you have a good working relationship with your current bank (perhaps you took out a loan with them previously, which you repaid in good time) this could work in your favour. They know your repayment history, which should make them more likely to help you than a brand new lender.
The more you have in savings, the better – your application will be dictated by the size of your deposit, so having a healthy sum set aside will increase the odds of your mortgage being approved.
A good credit rating will also boost your chances of getting a mortgage. Lenders won't just credit check you personally, they’ll also credit check your business via the address registered at Companies House.
Make sure there aren’t any red flags which could put lenders off.Check your credit rating with Experian
About the author
Lily Smith is a National Film and Television School trained writer, currently freelancing at ANNA Money. She’s collaborated with remarkable, inspiring people and together they've won Gold Lions, D&ADs, and secured $9M in Google Ventures funding.Read more of Lily's writing