Navigating the Mortgage Process as a Self-Employed Individual

You may have previously traded as a Limited company but have recently switched to trading as a Sole Trader, or you have previously been employed under PAYE, and you are now beginning to trade for yourself as a self-employed contractor. You may be someone who has started working for a non-UK company, but because they have no office or payroll in operation in the UK, the only way to work for this company is by becoming self-employed. If any of these scenarios sound familiar and you are also in the process of applying for a mortgage, you need to understand how this change can impact your application.

Why does being newly self-employed affect my mortgage application?

Many of the main lenders, when considering your mortgage application, will ask you for details of your income for the last 2-3 years. When you are self-employed, they will generally ask for copies of your tax return information, which includes your HMRC tax overview and tax calculation (formerly SA302). This information allows them to calculate an average of your income level over a few years. However, if you have become newly self-employed, you won’t have this information available.

If you were previously an employee, in a lender’s eyes, past employment income won’t be relevant to your application, as you are no longer in this role and it will be subjective if your new income level will be higher or lower than it was, as well as having the extra security of employment contracts in place. Likewise, if you traded as a Limited company, as this is a separate legal entity, there is no guarantee that you will have the same level of trading figures going forward, even if your self-employed work is in the same field. Lenders will be focused on understanding whether your self-employed trade can develop a sustainable income.

Can I still get a mortgage when newly self-employed?

There is still some hope of finding a mortgage even if you are newly self-employed, but it will require some additional time and work. You will however still require at least a year’s worth of trading figures to apply for a mortgage. There are some specialist lending providers who advertise that they can help self-employed workers with only 1 year’s worth of financial figures, however availability will be limited, and the interest rates and charges will likely be more costly. A lender will also review other areas of your application such as credit history and even the savings you have. So if your finances are in a good position here, this should help you in securing a mortgage offer.

What information will I be asked for on my mortgage application when I’m self-employed?

As mentioned above, they will ask for your financial information, which will include a copy of your tax return, HMRC tax overview and tax calculation. They will often ask for an accountant’s certificate, in which a qualified accountant is asked to confirm your financial figures for the relevant tax years, as well as providing any other information which may be relevant to your application. In addition to the financial information, you will be asked for proof of name and address, such as passport, driving licence, utility bills and often 3-6 months of prior bank statements. You should be aware that lenders will often review transactions going in and out of those statements, so be prepared for some follow-up questions should you have any high or irregular payments i.e., a holiday payment.

Mark Horsfield from Plus Accounting

Author: Mark Horsfield, Business Services Manager, Plus Accounting

Any views or opinions represented in this blog are personal, belong solely to the blog owner and do not represent those of Plus Accounting. All content provided on this blog is for informational purposes only. The owner of this blog makes no representations as to the accuracy or completeness of any information on this site or found by following any link on this site.

Date Published: 08 May 2023

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