Applying for a mortgage always sounds like a tricky task, especially if you’re self-employed as you do not have a set and secure amount of income every year.
Previously, you could apply for a self-certified mortgage – this allowed you to disclose to your lender how much you were earning without actually providing any evidence. Unfortunately, this type of mortgage was scrapped and now all lenders require proof of income for all mortgages.
This means that if you are self-employed, you need to prove how much you earn in order to apply for a mortgage.
Lenders usually ask for the following as proof of income:
- Two or three years’ worth of accounts prepared by a qualified accountant
- HMRC Tax Year Summaries – that show how much income you declared to HMRC and how much tax you paid on that
- Bank statements – including savings or ISA’s Proof of your deposit
- Details of any debt repayments and other outgoings, including things such as childcare costs, credit purchases and pension contributions.
If you have only recently started up as self-employed, you may not have two or three years’ worth of accounts. In this situation the lender may ask for proof of future trading such as sales contracts.
Depending on whether you operate as a sole trader or a partnership the lender will assess you in different ways. Lenders favour providing mortgages to those they consider to be low risk. This usually includes people with a steady income that have a low risk of defaulting on their monthly payments. For a sole trader, lenders will usually look at the net annual profit of the business. For partnerships, they’ll look at each partner’s share of the profit.
If you have any queries on the above or would like some advice on applying for a mortgage, please feel free to contact us on 0116 242 3400.
Calum Ainge, Accounts & Tax