Can You Get a Mortgage If You’ve Recently Become Self-Employed?

Becoming self-employed can be an exciting step, whether you’ve started your own business, moved into freelance work or become a contractor. However, if buying a home is also on your agenda, you may be wondering how your change in employment status could affect your chances of getting a mortgage.

The good news is that being self-employed doesn’t automatically prevent you from getting a mortgage. The main difference is usually how a lender assesses your income and the evidence they may require.

How Do Mortgage Lenders Assess Self-Employed Applicants?

When you’re employed, proving your income can often be relatively straightforward, with payslips and a P60 providing much of the information a lender needs.

For someone who is self-employed, income can fluctuate and there may not be a regular monthly salary. Lenders therefore typically want to see evidence showing that your income is sustainable and sufficient to support the mortgage you’re applying for.

Depending on how your business is structured, this could include:

• Business or company accounts
• Tax calculations
• Tax year overviews from HMRC
• Bank statements
• Evidence of ongoing contracts or future work

The exact documents required will depend on the lender and your individual circumstances.

How Long Do You Need to Have Been Self-Employed?

This is one of the most common questions we hear.

Many mortgage lenders prefer applicants to have two or more years of trading history, as this gives them a clearer picture of how the business is performing.

However, this isn’t a universal rule.

Some lenders may consider applications from people with a shorter trading history, potentially including those with only one year’s accounts. Your previous employment, experience within the same industry, current income and overall financial position may also be relevant.

This is why it can be particularly important not to assume that the criteria used by one bank will apply across the entire mortgage market.

What If You’ve Only Recently Gone Self-Employed?

Having recently become self-employed can make finding a suitable mortgage more challenging, but it doesn’t necessarily mean you have to put your plans on hold.

For example, someone who has left an employed position to become a self-employed consultant within the same industry may present a very different situation from someone starting a completely new business with no previous experience in that sector.

A lender may look at the wider picture, including your previous earnings, current business performance, available deposit, credit history and existing financial commitments.

How Is Self-Employed Income Calculated?

This can depend heavily on the structure of your business.

A sole trader may typically be assessed using taxable profits, whereas a limited company director could be assessed differently. Some lenders may consider salary and dividends, while others may have different ways of looking at income generated through the company.

This can make a significant difference to the amount you may potentially be able to borrow.

It is another reason why finding the right lender can be particularly important for self-employed applicants.

Does Having a Bigger Deposit Help?

Your deposit is only one part of a mortgage application, but having a larger deposit can potentially give you access to a wider range of mortgage options.

Lenders will still need to be satisfied that the mortgage is affordable, however, and will normally consider your income, expenditure, existing debts, credit history and other financial commitments.

What If Your Income Has Gone Up or Down?

Self-employed earnings aren’t always consistent from one year to the next.

Where profits have increased, lenders may differ in how much of that increase they’re prepared to take into account. If profits have fallen, a lender may want to understand why and whether the reduction is likely to continue.

Once again, different lenders can approach the same set of accounts differently.

Don’t Assume Your Own Bank Is Your Only Option

If you’ve recently become self-employed and your bank has said no to a mortgage, it doesn’t necessarily mean another lender will reach the same decision.

Mortgage lenders have their own affordability calculations, lending criteria and approaches to self-employed income. Understanding which lenders may be more suited to your circumstances can therefore be particularly valuable.

Speak to Clear Finance

If you’re self-employed and thinking about buying a property or remortgaging, Clear Finance can help you understand the mortgage options that may be available based on your circumstances.

Whether you’ve been running your business for several years or have only recently become self-employed, we can look at your situation, explain what information lenders may require and help identify suitable mortgage options.

Get in touch with Clear Finance today to discuss your circumstances and find out what your next step could be.

Your home may be repossessed if you do not keep up repayments on your mortgage.

For more information about our Financial Services and products in Doncaster call 01302 835938

Please ’Like us’ on Facebook – https://www.facebook.com/clearfinance.net/