Mortgages for Self-Employed

A self-employed mortgage, also known as a mortgage for self-employed individuals, is a type of home loan designed specifically for individuals who work for themselves or own their own business. Traditional mortgage lenders typically have strict requirements when it comes to verifying income and employment stability. However, self-employed individuals often face challenges in meeting these criteria due to the nature of their work, variable income streams, and the way they report their earnings.

Self-employed mortgages take into account the unique circumstances of self-employed borrowers. These mortgages typically involve a different approach to assessing income, allowing self-employed individuals to provide alternative documentation to prove their financial stability and ability to repay the loan. This may include tax returns, business financial statements, bank statements, and other relevant financial records.

Lenders offering self-employed mortgages understand that self-employed individuals may have fluctuations in income from year to year. They consider factors such as the longevity and stability of the business, future earning potential, and the overall financial picture of the borrower when evaluating their mortgage application.

The goal of a self-employed mortgage is to provide fair access to homeownership for self-employed individuals by considering their unique financial circumstances. It allows them to demonstrate their ability to meet mortgage obligations based on their actual income and financial situation rather than solely relying on traditional employment criteria.

A self-employed mortgage is designed for individuals who work for themselves or own their own business. While the specific criteria may vary depending on the lender, generally, the following types of individuals may be eligible for a self-employed mortgage:

Sole Proprietors: Individuals who operate their own business as the sole owner and have full control over its operations.

Partners in a Partnership: Individuals who are part of a partnership business structure and share ownership, responsibilities and profits with other partners.

Limited Company Directors: Individuals who own and operate a business as a director of a limited company.

Freelancers and Contractors: Individuals who work on a freelance or contract basis, providing services to clients on a project or contract basis.

Consultants and Professionals: Self-employed individuals who offer professional services or consultancy work in fields such as law, medicine, accounting, engineering, or creative industries.

Small Business Owners: Individuals who own and operate a small business with a few employees, including restaurants, retail stores or service-based businesses.

It’s important to note that eligibility for a self-employed mortgage depends on various factors, including the duration of self-employment, income stability, credit history, and overall financial profile. Lenders will typically require documentation such as tax returns, financial statements, business accounts, and bank statements to assess the income and creditworthiness of self-employed borrowers. Working with a mortgage specialist who specialises in self-employed mortgages can help navigate the process and increase the chances of approval.

Obtaining a self-employed mortgage without proof of income can be challenging. Traditional lenders typically require documentation to verify income and assess the borrower’s ability to repay the loan. However, there are some alternative options available for self-employed individuals who may have difficulty providing traditional proof of income:

Bank Statement Mortgages: Some lenders offer bank statement mortgages, where income is assessed based on bank statements rather than traditional income documentation. These statements show regular deposits and can help demonstrate cash flow and income stability.

Stated Income/Stated Asset (SISA) Loans: In certain cases, lenders may offer stated income or stated asset loans, where the borrower provides an affidavit stating their income without providing specific documentation. However, these loans may have higher interest rates or additional requirements.

Asset-Based Loans: Instead of focusing solely on income, asset-based loans consider the borrower’s overall financial picture, including assets and investments. Lenders assess the borrower’s ability to repay based on their net worth and available assets.

It’s important to note that these alternative options often come with stricter requirements, such as higher down payments, higher interest rates, or lower loan-to-value ratios. They may also have different eligibility criteria and documentation requirements. It’s advisable to work with a mortgage specialist or broker experienced in self-employed mortgages to explore the available options and find the best solution based on your specific situation.

Self-certified mortgages are no longer available in the UK. They were fairly commonly used in the past, allowing borrowers to self-declare their income without providing extensive documentation or proof. However, following the global financial crisis in 2008, these mortgages were heavily criticised for their potential for abuse and the increased risk of lending to borrowers who may not be able to afford the loan.

In response to the financial crisis, regulatory reforms were implemented to strengthen lending practices and ensure responsible lending. As a result, self-certified mortgages were effectively discontinued in the UK. The Financial Conduct Authority (FCA), the regulatory body overseeing mortgage lending in the UK, introduced stricter affordability assessments and income verification requirements for mortgage applications.

Currently, lenders in the UK are required to conduct thorough income assessments and verify income through documentation, such as bank statements, tax returns, and payslips. This ensures that borrowers can demonstrate their ability to afford the mortgage and reduces the risk of irresponsible lending.

A SA302 is a document issued by HM Revenue and Customs (HMRC) in the United Kingdom. It provides a summary of an individual’s self-assessment tax calculation, including the income reported and the tax due for a specific tax year. SA302 forms are typically required by lenders and financial institutions when assessing the income and affordability of self-employed individuals or those who receive income from multiple sources.

The SA302 form is obtained by completing a self-assessment tax return with HMRC. Once the tax return has been processed, HMRC will issue the SA302 form, which shows the total income, tax liability, and tax paid for a specific tax year. It provides a snapshot of the individual’s income and tax situation, which is important for lenders to assess the borrower’s financial stability and affordability for a mortgage or other financial products.

In addition to the SA302 form, lenders may also require supporting documents such as tax calculations, tax year overview, or tax year calculation summaries. These documents provide further details and verification of the income declared on the SA302 form.

It’s important for self-employed individuals or those with complex income sources to keep their tax affairs in order and ensure they have accurate SA302 forms and supporting documentation available when applying for mortgages or other financial products that require proof of income.

Yes, it is possible to use dividend income to qualify for a mortgage. Dividend income can be considered as part of your overall income when applying for a mortgage, especially if you are a shareholder or owner of a company that pays dividends. However, the acceptance and treatment of dividend income can vary among lenders, and certain criteria must be met for it to be considered.

Here are a few key factors to consider when using dividend income for a mortgage:

Consistency and History: Lenders typically prefer to see a consistent track record of receiving dividends over a period of time, usually two to three years. This helps demonstrate the stability of the income and its reliability.

Documentation: Lenders will require documentation to verify the dividend income, such as company accounts, tax returns, and dividend vouchers or statements. You may need to provide evidence of dividend payments received and show that they are sustainable.

Retained Profits: Lenders may consider retained profits within the company when assessing dividend income. Retained profits represent the earnings that have been retained within the business instead of being distributed as dividends. These profits may be factored into the overall affordability assessment.

Percentage Used: Lenders typically consider a percentage of the dividend income rather than the full amount. The specific percentage can vary among lenders, but it is often around 50% to 75% of the declared dividend income.

It’s important to work with a mortgage advisor or broker who has experience with self-employed individuals and dividend income. Argyll Drummond can help you navigate the mortgage application process, identify lenders who accept dividend income, and guide you through the documentation requirements to maximise your chances of securing a mortgage based on your dividend income.

While many traditional lenders prefer to see a minimum of three years of accounts to assess income stability, there are mortgage options available for individuals with a shorter self-employment history or limited accounts.

Here are some options to consider:

Specialist Lenders: Some lenders specialise in providing mortgages to self-employed individuals with limited accounts. These lenders have more flexible criteria and may consider applications based on a shorter self-employment period, such as one or two years of accounts.

Increased Deposit: Increasing your deposit or having a larger down payment can improve your chances of obtaining a mortgage with less than three years of accounts. A larger deposit can help mitigate the perceived risk for lenders and potentially open up more options.

Strong Credit Profile: A strong credit history and score can offset the limited accounts. Lenders may be more willing to consider your mortgage application if you have a solid credit profile, demonstrating responsible financial behaviour and a low risk of default.

Mortgage Guarantors: If you have a guarantor with a stable income or assets, they can support your mortgage application and provide additional security to the lender.

Specialist Mortgage Advisors: Consulting with a mortgage advisor such as Argyll Drummond can be beneficial. We have extensive knowledge of the market and access to a wide range of lenders, increasing your chances of finding a suitable mortgage product based on your individual circumstances.

While it may be more challenging to secure a mortgage with less than three years of accounts, exploring these options and working with an experienced professional can help you find lenders who are more accommodating to your situation.

Absolutely! If you are self-employed and looking for a mortgage, Argyll Drummond is here to help. Our team of mortgage specialists specialises in assisting self-employed clients in securing the right mortgage for their needs. We have extensive experience in navigating the complexities of self-employed mortgages and access to a wide network of lenders.

Contact us today to discuss your specific situation and find out how we can assist you in sourcing a self-employed mortgage. Our dedicated team will work closely with you, taking the time to understand your unique circumstances and financial goals. We will guide you through the process, provide expert advice, and leverage our industry relationships to find the best mortgage options available to you.

Don’t let the challenges of being self-employed hold you back from homeownership. Trust Argyll Drummond to provide tailored solutions and support you every step of the way. Take the first step towards securing a self-employed mortgage by contacting us now.