End of self-certification

Following the Mortgage Market Review, getting a mortgage became a lot harder – especially if you’re self-employed. On the back of the financial crisis, regulations surrounding mortgage loans became much stricter.

One of the main features was that lenders became responsible for assessing whether customers could afford to pay back their loan. This meant verifying the customer's income. Which is fine for salaried worker; but if you’re self-employed things are a little different.

What you need to prove

Self-employed people need to have been trading for 3 years, unlike those employed by someone else who need just 6 months’ worth of bank statements. You will also need 2 years’ accounts or self-assessment tax returns available.

Documents that can help prove your ability to repay mortgages including any payslips, p60s, benefits and pension statements, tax returns, and self-employed accounts.

One stumbling block is often your income. As a self-employed owner of a company, you might only pay yourself a small wage, which doesn’t reflect your actual company profits. But there are a number of other ways to prove to lenders that you’re earning.

These can include net profit or total income received from your accounts, or your share of dividends if you’re part of a partnership. You can also provide outside forms of income, such as investments (whether UK or overseas based) and rental properties.

Other lenders might ask for future predictions of income, a list of clients or secured contracts to prove you’ll still be able to pay.

Your general credit score will also be important – as a self-employed worker you may have had to take out loans, missed payments through no fault of your own, or have been rejected for a mortgage in the past. These can all affect your chances of getting a mortgage.

Who should I go to?

While most high street banks will provide a mortgage to self-employed people – given you have everything they ask for and meet their criteria – there are a number of banks that are more open to the idea.

There are even some who would be willing to provide a mortgage if you’ve been self-employed for just a year. It’s worth ringing around a few banks explaining your situation and meeting with their mortgage advisors.

How much will I be allowed to borrow?

This depends on the lender. While working out mortgages lending from a salary is usually pretty straightforward, for self-employed people it comes down to your personal circumstances. Some banks will base it on the income you pay yourself while others will take into accounts profits and other sources of income.

If you’re a sole trader or part of a partnership, the lenders will most likely look at your net profits, while for limited companies, it’ll be salary and dividends.

As for the rates you’ll receive, as long as you meet the lender’s criteria you should be getting the same deals that everyone else gets.