In general, getting a mortgage can be a little more difficult for those who are self employed. This is because the main criteria that lenders base their decision on with regards to whether or not to lend, and if so how much they will lend, is based principally on the borrower’s income.
For a company employee with a salary it is a relatively straightforward process to prove their income, and to demonstrate that they will continue to earn in the future. If you are self employed, it can be harder to convince lenders that you have the income and, just as importantly, the future earning potential to be able to make repayments satisfactorily.
But that doesn’t mean that you will not be able to find a good deal on a mortgage if you are self employed. Lenders recognise that more and more people these days work for themselves, and on the whole they are willing to lend to self employed people, and they offer the same deals and packages, including tracker and fixed rate mortgages.
What happened to self-certification mortgages?
It used to be the case that lenders were willing to offer mortgages to self employed people on a self-certification basis. Essentially this meant that the borrower would not have to prove their earnings, but would simply declare their probable income, and this would be taken at face value by the lender, and the mortgage given. In fact this system was only ever intended for a small minority of cases, but it came into widespread use, and was unfortunately abused by both borrowers and lenders alike.
Now the self-certification system has been almost entirely scrapped, and will be banned under new regulations that are due to come into effect in 2014. As a result, it is now up to self employed people to prove their income and provide evidence of future earning potential.
How to get a mortgage if you are self employed
In order to get a mortgage, you will need to prove your income. This usually means providing details of accounts or tax returns for the last two years, although some lenders will insist on details for the last three years. What they are looking for is a certain degree of stability in your income, so that they can see you have had a steady income that is likely to continue in the future.
It is also likely that you will need to provide evidence of worked lined up for the future, so that the lender can gauge your earning potential. You might be asked to provide the details of your clients and information about any upcoming projects you expect to be working on. If you are unable to provide any such evidence, you still might be able to get a mortgage, as long as you can show proof of savings or investments that you have access to. If you have a lot of savings or a large amount of investments, you will likely find that lenders are willing to be more flexible.
There are specialist lenders, who offer mortgage deals specifically targeted at the self employed, but most high street lenders will also be willing to anyone with a stable income, even if you are self employed. Make sure you get good independent advice, and have looked around for the best possible deals, before making a final decision.