04 Sep Self Employed Mortgages: What Paperwork Do I Need to Provide?
If you’re looking to get on the property ladder and are self-employed you may have been told it’s almost impossible or that you’ll have to jump through a neverending line of hoops.
The fact is that being self-employed doesn’t cause mortgage lenders to close the door on you. They just need a little more information than they might need from somebody in conventional employment before they can approve your application.
This guide explains the steps you’ll need to take as a business owner, contractor or freelancer to get a mortgage and also some of the most common pitfalls and how you can avoid them.
First Things First - There’s No Such Thing as a Self-Employed Mortgage
It’s a common misconception that a self-employed mortgage product is different to a normal mortgage. Whether you are self-employed or employed usually makes no difference when it comes to the mortgage products that will be available to you. Lenders just need to be assured that you can make the monthly payments. While having a contracted salary is a great way to prove your income, there are other ways you can show your ability to pay.
“At Alextra Mortgages, we understand the stigma that is associated with getting a mortgage when you are self-employed and it’s something we go out of our way to eliminate. One of the things we do best is building long-term relationships so that we can seek out the products that are best for them. A quick chat with one of our mortgage experts will show you that getting a mortgage when you are self-employed isn’t as daunting as you might think!” – Lisa Boulton – Mortgage Advisor, Alextra Mortgages
Proving You Are Good For the Money
While lenders were a little loose with the finer income checks in the past (does anybody remember self-certification mortgages?), they are now required by law to have confidence that a borrower has the ability to repay their loan. It’s up to the borrower to show proof that they can meet repayments.
Organisation is Key
When you’re self-employed, working out profit can be a little more tricky than if you were self-employed. It’s important to keep your finances in check so that all of those expenses, invoices, taxes, bills and dividends can be used to prove to lenders that you are good for the money.
Hire an Accountant
Getting yourself an accountant is the best way to get your accounts in order. In fact, many mortgage lenders will insist that your financial information is prepared by a qualified accountant (a service we can arrange for you if required through our sister company Alextra Group), especially if your accounts are complex. Professionally prepared accounts will also give you and your mortgage lender confidence that the figures presented are accurate.
But Also, Understand Your Own Numbers
It’s so important that you have a good handle on your own numbers. That doesn’t mean you have to understand everything, but if a lender asks you questions about your outgoings and incomings, they will need to know you understand your business and are running it well. Don’t be too reliant on your accountant.
For example, if you had a month or two where business dipped, the lender might ask you why. An inaccurate or unsure answer could be a red flag to a lender, so it’s really important that you can explain your finances clearly.
Show Me the Paperwork - What Do Lenders Need to See?
Yes, this is possibly the part you’ve been dreading, but it’s not too bad if you’re organised. As you’re not employed and don’t have three lovely payslips to show your lender, you’ll need to prove your income in another way. The paperwork you’ll need to supply will depend on a number of factors, such as how long you have been self-employed and your business structure. We can give you personalised advice tailored to your situation.
Here are the documents that are common to most mortgage applications:
SA302
This form from HMRC gives a tax breakdown based on your last self-assessment submission. When you apply for a mortgage as a self-employed business applicant this is the most commonly requested piece of paperwork. Most lenders will request SA302s from the last three years. These show evidence of sustained income over that period and give your lender a good idea about the stability of your business and its ability to generate revenue. Some lenders will be happy to accept the SA302s alone while others may request a cover letter from an HMRC officer.
Proof of Income
You will also need to show proof of income to your lender. Some might be satisfied to see a combination of bank statements, balance sheets and profit and loss reports, while others may ask to see certified accounts certificates signed by a qualified accountant.
The most important thing you can do in preparation for your mortgage application is to get your accounts in order. If you can’t understand your accounts, you can’t expect your lender to understand them.
Bank Statements
You can use bank statements as proof of income but they can also be used for showing your outgoings. If you are applying for a mortgage with the same bank that you hold a business account with they may have access to this information automatically. However, they will inform you before they look at your account.
Proof of Deposit
Another thing the lender will want to see is that you have the means to pay a deposit on a property. They will likely ask to see evidence of this, such as a bank statement.
Outgoings
Even if you have a healthy bank balance and evidence of sufficient income, you will still need to provide details about your outgoings. This might include childcare costs, car loan repayments, subscriptions to services you use in your line of business and pension contributions.
Need Help With the Finer Details?
Self-employed mortgages don’t have to be daunting but they do need to be repaid. For this reason, lenders will ensure that they are happy you have the ability to meet your obligations as a borrower. We can help you to give them that assurance by getting you through the application process and assisting you with the paperwork. Get in touch with our team today to find out more about the process and how we can help.
The guidance provided within this website is subject to the UK regulatory regime and is therefore primarily targeted at consumers based in the UK.
Alextra Wealth Management Limited which is an Appointed Representative of TenetConnect Limited, which is authorised and regulated by the Financial Conduct Authority.
TenetConnect Limited is entered on the Financial Services Register (www.fca.org.uk/register) under reference 149826.