16 June 2016

Self-employed? Here's some tips on how to get a mortgage

Many people dream of becoming their own boss and enjoying the flexibility of self–employment. But being classed as self–employed rather than an employee can create challenges when it comes to securing a mortgage.

In fact, those going it alone will have a range of financial issues to consider, including record–keeping, tax and accountancy, and forecasting how much work they need to do over the course of a year to cover costs – all of which can factor into mortgage applications and affordability.

So whether you’re already self–employed and saving up for a home, or you're just about to go down that route, what steps can you take to boost your hopes of getting a mortgage further down the line?

Keep your records in order

Perhaps the most important factor in securing a mortgage when you’re self–employed is to keep good records that provide a clear picture of your financial situation over the long term.

For ordinary workers, lenders simply need to get in touch with their employer to confirm they have a steady source of income. But the picture can be muddier if you become self–employed, with the onus on you to provide hard evidence of both your income and the performance of your business. If you’re about to make the leap into self–employment, you’ll need to focus on good record–keeping right from the word go.

Lenders are keen to see well–ordered and up–to–date company accounts, generally going back two or three years, so bear that in mind from the start. You can offer up the annual accounts and tax records of your business to help prove your income, or provide a reference from a qualified accountant.

If you're applying for a Nationwide mortgage, we require self–employed applicants to have accounts for 2 years. Check out our mortgage application proofs guide for more information.

Aim for consistent profits

If it’s within your power as a business owner, achieving a consistent profit and turnover across a number of years could boost your credibility among lenders. Those who can avoid sudden swings in their accounts may appear a safer pair of hands than those whose records are wildly different every year.

If your business ends up enduring a tough year or two, make sure lenders are clear on the reasons for any accounting inconsistencies – for example, the impact of start–up costs or a period of illness.

Clean up your credit rating

Having a strong credit rating can go a long way towards a successful mortgage application – whether you’re classed as an employee or as self–employed.

Lenders use credit ratings and credit scores to decide whether to lend you money and, if so, how much. Keep in mind that companies have their own internal criteria when making a decision – the way one lender interprets your credit worthiness may be different to another.

Learn more about how to improve your credit rating.

Build a sizeable deposit

As with other types of borrower, it never hurts for someone who is self–employed to have a healthy deposit to put down on a home. Getting into the saving habit early and keeping abreast of new savings options could help in your efforts to build a significant deposit.

Of course, saving towards a deposit is just one of the things you need to consider before purchasing a property. Check out our guides on buying and owning property.

Things to consider

If you’ve become self–employed since buying your home, you may have different criteria to consider when looking at additional borrowing or remortgaging.

However, along with detailed records concerning the performance of your business, a sound repayment history may also support your remortgaging or additional borrowing application. If you’ve always made your monthly mortgage payments on time, you’ll have further evidence of your long–term reliability.

Learn more about remortgaging and additional borrowing.

Keep your cool

The process of getting a mortgage may seem more complicated if you’ve just become self–employed, especially if you’re busy running your business with little spare time. But by staying patient, making sure you’re answering all lenders’ questions thoroughly and having the paperwork you need organised, you’ll be making sure the process is as smooth as it can be.

Looking to review your mortgage options?

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