What is a Self-Employed Mortgage?

Being self-employed can make it hard to get a mortgage. Here at Finance Advice Centre, we are whole of market advisors. This means we have access to all lenders to get you the best deal no matter what your situation.

What about the length of accounts?

We have the options available to gain a mortgage for you with less than 1 year’s accounts. This is possible if you are in a profession such as a doctor, solicitor, dentist, architect, or vet to name a few.

What counts as being self-employed?

You will be viewed as self-employed by lenders if you own more than 20-25% of a business from which you earn your main income. For example, you could be a sole trader, a contractor, or a company director.

How do you get a self-employed mortgage?

In theory when you are self-employed and looking for a mortgage you will have the same options as anyone else and you will need to pass the lender’s affordability tests like every other borrower. However, without an employer to vouch for your wage self-employed people need to provide much more evidence of their income than other borrowers.

What do you need to provide for a self-employed mortgage?

As proof of your income when you apply for a mortgage typically you will need to provide: Two or more years certified accounts (as previously mentioned we work with lenders who will accept your application with less than this but in general this is the standard) SA302 forms or a tax year overview from HMRC for the past two or three years

What are self-certification mortgages, and can you still get one?

Self-certification or self-cert mortgages were designed specifically for self-employed people and allowed them to self-certify how much they earnt within any given year and no need to provide any evidence.

Do self-employed workers pay higher mortgage rates?

Self-employed mortgages aren’t necessarily more expensive, as long as you can provide enough suitable information about your income you can qualify for the same mortgage deal as someone with a similar salary in a permanent, full-time job. The mortgage rate you receive is more likely to depend on how much deposit you have saved to put down and your credit rating.

How can you boost your chances of getting a self-employed mortgage?

As with any mortgage applications there are steps you can take to improve your chances of being accepted. These include: Save as much as you can for a deposit Check your credit rating and do what you can improve if it’s too low Correct any mistakes on your credit report

How can you find the best self-employed mortgage deals?

The best way to find a competitive mortgage is by shopping around as much as possible and comparing deals from different lenders. Remember when you are comparing deals to factor in the cost of any fees as you could find it is cheaper to go for a mortgage with a higher interest rate but a lower fee.

How does the set-up of your business affect your mortgage chances?

The structure of your business can influence how lenders view your income when you are applying for a mortgage. See how lenders view each of the three main business structures below.

How much can you borrow for a self-employed mortgage?

Each lender has different criteria and policy on how much they will lend to a borrower. In this case it doesn’t really matter whether you are employed or self-employed, as long as you meet the criteria set out by the lender you can typically borrow up to 4.5 times your annual income.

Is it more difficult to get a self-employed mortgage as a contractor?

Applying for a mortgage as a contractor can be quite tricky sometimes. In part this is because lenders will have different criteria on what defines a contractor, which will in turn dictate how much mortgage you can get. Typically, you are either an employed person working on a fixed or short-term contract, or you are self-employed and work through one main company.

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Buying a financial product such as a mortgage can be the biggest decision made in our lives. It is for this reason that impartial advice is critical from qualified advisors.

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Second home mortgage rates

There are a range of reasons to think about buying a second home from having a holiday home to helping a family member get on the property ladder. No matter the reason you want to invest in a second home it is important to make sure you can fully afford it.

Mortgages on second properties are not always very different from mortgages for main residences but what is available to you will depend on certain factors. The type of mortgage you will need will depend on what kind of property you want to buy and what you intend to use it for. For example, it can be a bit different if you want to buy a second property as a buy-to-let investment.

Mortgages for second homes or holiday homes

If you want to buy a holiday home to use with your family and don’t plan on renting it out regularly then you should be able to take out a straightforward residential mortgage. The lender will want to make sure you can afford both your current mortgage repayments and your new mortgage payments.

Therefore, you will likely need to pay a larger deposit, typically a minimum of 15% of the property’s value and you may encounter slightly higher second mortgage rates and fees than on your current mortgage. Also, keep in mind that you will have to pay additional stamp duty on a second home.

By contrast if you plan to regularly let out a holiday home when it would otherwise be unoccupied you would need to apply for a specific holiday home mortgage. Certain lenders and building societies will underwrite these mortgages on a case-by-case basis. If you are looking to let out your property as an Airbnb you require explicit permission from your lender.

Second home mortgages for buy-to-let

If you are intending to buy a second property as a buy-to-let investment you should apply for a buy-to-let mortgage instead of a residential one. The second home mortgage rates are usually higher, and you will have to put down a minimum of 25% as a deposit, but they can be interest-only rather than repayment and are specifically designed for that purpose.

It starts to get trickier if you buy a second property that you plan to use as residence and hence take out a residential mortgage but then end up letting it out instead. For this you will need to get permission from your lender and possibly pay an administration fee. Each lender will approach this situation differently and not all of them will give you permission to change. If you think there is even a chance you could let the property out in the future, you should check whether the lender will let you and what the terms and conditions would be.

Alternatively, if you buy a second property with the intention of moving in but struggle to sell your previous home, you may want to consider converting your current residential mortgage to a consumer buy-to-let mortgage (sometimes referred to as a let-to-buy mortgage). You should keep in mind that mortgages like these and buy-to-let mortgages are not the same as standard residential ones. Often they need higher initial deposits and charge higher interest rates. So, you will need to think about this when working out if it is a financially viable option for you.

Is there a limit on the number of residential mortgages you can have?

Technically in the UK you can have as many residential mortgages as you want, but lenders are particularly cautious with people using them to buy properties and then rent them out. As a result, lenders often only allow a maximum of two residential mortgages, one for your main residence and one for a holiday home or for a family member to live in. If you want to get a second mortgage you will need to declare which of the properties will be your main residence.

Also, you will be required to give a good reason as to why you want to take out a mortgage on a second property, such as divorce, holiday home for the family etc. Lenders need to be sure that they are lending money for the purpose it is intended and that you are not taking out a residential mortgage on a second home to earn rental income from that property.

YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE

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Choosing a financial product or service, such as a mortgage, remortgage, loan or insurance can be daunting and your choice is a decision you need to get right. For this reason, it is vital that you get impartial advice from competent and qualified advisors. Whether you are a first-time buyer, looking to remortgage, hoping to remortgage or even buy a property to let, needing a loan or insurance this is where our advisers excel.

Be reassured that our aim is to guarantee reliable financial advice appropriate to any individual that makes contact with us. Through our network of contacts, we have access to thousands of financial products, from mortgages to loans to insurance, so we are confident that we’ll find one to suit you.

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