Will I be able to get a mortgage if I am self-employed?
- Credit: Getty Images/iStockphoto
I am aged 32 and self-employed. I am thinking of buying a house and would need a mortgage but am worried that I might struggle to get one. My income goes up and down from month to month, depending on the contracts that I’m working on, but I have made a decent amount each year for the last five years. Will mortgage companies consider me?
Diane Fish of Smith & Pinching responds:
Most lenders will consider an application from someone who is self-employed but may apply fairly stringent affordability checks before giving the go-ahead, given the fact that your income isn’t guaranteed. You will certainly need to provide proof of your recent past income, usually via copies of three years of tax computations – also known as form SA302 – and corresponding tax overviews. You may also be asked for finalised certified accounts for the past three years.
If you apply for your mortgage in the last quarter of the year (September onwards), the lender is likely to ask for the finalised accounts and tax computations for the tax year that has just ended, even though your tax return isn’t required by HMRC until the following January. After all, by then the previous tax year’s figures will be nearly 18 months old. It would be important to get your tax return and accounts done as soon as possible after the tax year ends in April to ensure you have the documentation you need when you are ready to apply for a mortgage.
Another factor to bear in mind is that the taxable profits you provide on your return may determine the amount that a lender may consider suitable to offer you for a mortgage. Any planning measures you may take to reduce your taxable profits, such as pension contributions, may reduce the amount that may be available to you as a mortgage.
The size of your deposit may also affect the amount that mortgage companies are prepared to lend to you: the higher your deposit, the more comfortable the lender will be with the perceived risk you pose. This is applicable to all customer types, not just the self-employed.
I suggest you talk your circumstances through with an independent mortgage adviser who will be able to research mortgage deals to suit your specific needs.
Your home may be repossessed if you do not keep up payments on your mortgage. There will be a fee for the mortgage advice. The precise amount will depend upon your circumstances, and the type of lending taken. Smith & Pinching’s minimum advice fee is £950. Any opinions expressed in this article do not constitute advice.
For more information, please visit www.smith-pinching.co.uk