There are a lot of advantages to being self employed, but financial security is not always one of them.
Even if you’re running a successful, profitable business, it’s hard to guarantee your income from month to month, and you never know what new costs or opportunities might be around the corner.
For many business owners, the flexibility, freedom and independence you get when you work for yourself far outweighs the downsides. But the reality is that some things are just more difficult if you don’t have an employment contract, and that includes securing a mortgage.
It’s something our clients often ask us about – in a system that’s set up for people with regular paycheques and minimum risk, how do you go about getting on the housing ladder?
You might have heard of ‘self-certification’ mortgages before. These were originally designed for self-employed people, allowing them to certify their own income without providing extra evidence.
These are no longer available, however, as abuse and over-selling led to this type of product being banned by the Financial Conduct Authority in 2014.
It’s still possible to get a mortgage if you’re self-employed, but more evidence is required and you’ll be applying for the same kinds of products available for employed people.
Proving your income
To secure a mortgage you need to show the lender you’re a low-risk option, so the more evidence you can provide that you’ll be able to make the repayments on time, the better.
To prove your income when you apply for a mortgage, you will need to provide two or more years’ worth of certified accounts.
Getting these prepared and signed off by a chartered accountant like me is essential – in fact, some lenders will not accept them as evidence otherwise.
You’ll also need SA302 forms covering the past two or three years, which show your annual tax calculations. You can access these through HMRC’s online service or your accounting software after you’ve completed a self-assessment return.
Depending on your circumstances and the lender’s requirements, there might be other information you need to provide.
If you’re a contractor, for example, evidence of upcoming contracts might help to show you have a consistent income. Company directors might also need to provide information on their dividend payments and profits retained in the company.
Improving your chances
There are also some steps you can take to make yourself more favourable to mortgage lenders.
One of these is to make sure your finances are all in order. Check your credit history, too, and make sure you’re paying off any debts as quickly as possible to improve your score.
Being able to show you have a significant amount of savings will also help to reassure lenders you have a safety net in the event things go wrong in your business.
In some cases, your best option might just be to save up for a larger deposit. This can also have the benefit of opening up better deals with a lower interest rate than you’d get with a small deposit, so it could save you more in the long-run.
Talk to us about buying your first home.