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Home » Securing a Self Employed Mortgage in the UK – A Guide

Securing a Self Employed Mortgage in the UK – A Guide

The number of self-employed workers has surged in the UK, growing by over 20% in the past decade. However, successfully qualifying for a competitive mortgage as a self-employed borrower still requires understanding key eligibility factors and navigating a process geared more for traditional employees.

In this expanded guide, we’ll outline what today’s lenders look for when assessing self employed applicants, how to best present your profile favorably, and smart strategies to match with appropriate products and lenders. Following wise steps can help independent contractors demonstrate stability, verify income, and highlight creditworthiness resulting in mortgage approval with ideal terms.

Proving Consistent Income Over Time

As a self-employed applicant, your ability to establish a stable earnings track record over time is arguably the most important factor. Underwriters emphasize income sustainability as self-employment income is perceived as riskier and less guaranteed than salaried income.

Provide official annual accounts for your business covering at minimum the last two years, ideally showing steadily growing sales and profits year to year. Highlight any contracts extending 12-24 months evidencing future guaranteed earnings. For recent startups, accounts covering a longer pre-trading period may be required. Avoid gaps or estimates in reporting that raise flags.

Have your accountant complete a self employed income verification form that validates and substantiates your stated income levels based on historical filings. This credibility boosts trust in your declared salary and profits. Recent bank statements showing business income deposited into your personal accounts further solidifies your earning capability.

Optimizing Your Accounts for Mortgage Purposes

When preparing accounts prior to applying, it is wise to consult your accountant regarding steps that can optimize net profit calculations for lending purposes, versus pure tax optimization. For example:

  • Claiming the maximum justifiable amount of business expenses like use of home office and pension contributions minimizes taxable profits. However, reducing net profits too far can negatively impact lending eligibility.
  • Reporting income that was underdeclared for taxes will not count towards assessed income qualifications with underwriters either. There can be tradeoffs between mortgage and tax accounting.
  • However, clearly documenting income sources beyond net profit like dividends, director loans and personal shareholding income provides a more complete earnings picture to lenders.
  • Year to year consistency in accounts also builds credibility. Avoid drastic income spikes or dips between filings. Progressively rising profits over two years is ideal.

Having an accountant experienced with optimizing self employed accounts for lending can help substantially. The goal is painting an accurate, substantiated picture of your stable earnings.

Assembling a Complete Application Package

In addition to official accounts, underwriters also require supplementary documentation like:

  • Bank statements showing regular client transfers aligning with invoices and accounting records. Highlight consistent payments.
  • Tax overviews summarizing your latest filings and tax amounts paid. These should match figures reported on accounts.
  • A portfolio of current contracts and purchase orders providing visibility into future continued business.
  • Business plans outlining growth forecasts and initiatives if a newer startup company.

Providing as much credible paperwork as possible to verify your income stream is key to self employed mortgage success. Let your accountant compile and submit the application package for a polished presentation.

Managing Personal Finances Prudently

In addition to scrutinizing your business finances, underwriters will also review your personal bank statements, credit reports and existing debts as part of the self employed mortgage application. This broader analysis provides insights into how prudently you manage finances.

  • Statements should illustrate sufficient income left after business transfers to cover regular living expenses. Underwriters want to see adequate net income.
  • Avoid anomalous lump sum transfers from business accounts prior to applying. Consistent salary payments build trust.
  • Having an organized record of accounts like mortgages, loans and credits paid on time enhances your management credibility.
  • Any historic issues like CCJs or defaults must be explained – for example, temporary impacts from Covid delays.

The stronger your personal financial track record, the easier achieving self employed mortgage approval becomes.

Verifying Down Payment Sources

As a self employed borrower, take extra steps to document the sources of your mortgage deposit funds. Lenders always require clarity on accumulation of deposits.

Provide paper trails illustrating personal savings accumulation like:

  • Regular bank statement transfers into savings from your regular salary payments.
  • Investment proceeds evidenced by contracts and receipts.
  • Inheritance or property sales evidenced by legal documentation.
  • Gifted funds evidenced by supporter affidavits and your deposit receipts.

Documenting that the down payment comes from legitimate sources is crucial for smooth underwriting. All deposits must be accounted for fully.

Finding the Right Products for Self Employed Borrowers

Specialized lenders offer niche mortgage products designed specifically for self employed applicants that focus less on existing debts or credit scores, instead weighing overall affordability. Seek out these tailored products from fintech lenders like Atom Bank, Moneybox, and Habito who understand self employed profiles.

Mortgage brokers are indispensable allies for sourcing the most appropriate self employed mortgage products and lenders tailored to your particular profile strengths and weaknesses. Brokers match you only with lenders open to self employed cases. This prevents wasted applications.

In summary, combining prudent financial habits with robust income documentation, transparency on personal finances, and strategic product matching gives self employed and contractor borrowers the greatest chance of mortgage success. Proactively managing these key factors will help your application stand apart.