Getting a mortgage as a self-employed person in the UK can be more difficult than for someone in full-time employment.
According to the Office for National Statistics, over 4.2 million people in the UK are self-employed, and many successfully get mortgages each year. By planning ahead and following the right steps, self-employed people can secure the mortgage they need to buy a home.
Lenders often prefer borrowers with a steady income from an employer, but there are ways to improve your chances of approval. By preparing properly and choosing the right lender, self-employed people can secure a mortgage and buy a home.
Proving Your Income
Lenders need to see proof of income to decide if you can afford the mortgage repayments. Most mortgage providers ask for at least two or three years of accounts, but some may consider applications with just one year’s worth of records.
Keeping your financial accounts up to date and having them checked by a qualified accountant can make a big difference. If your earnings have increased over time, this can also help show lenders that your income is stable and reliable.
Building a Strong Credit Profile
According to this guide, a good credit score is important for getting a mortgage, especially if you are self-employed. Lenders check your credit history to see if you have borrowed money before and whether you repaid it on time.
Checking your credit report regularly and making sure all bills, credit cards, and loans are paid on time can improve your credit score. Registering on the electoral roll at your current address can also help, as it makes it easier for lenders to confirm your identity.
Using a Mortgage Broker
A mortgage broker can help self-employed people find lenders that are more likely to approve their application. Some banks and building societies have strict rules about self-employed borrowers, while others are more flexible.
A mortgage broker knows which lenders are open to self-employed applicants and can save time by finding the best deals. Brokers also help with paperwork and making sure all financial documents are in order before applying.
Challenger and Alternative Banks
Some self-employed people struggle to get a mortgage from high street banks, but there are other options. Challenger banks, bridging lenders and specialist mortgage lenders offer mortgages designed for people with different types of income and can help with property purchases.
These lenders are often more flexible and may accept applications with just one year’s worth of accounts. The downside is that interest rates may be higher, but they can provide an option for those who do not meet the strict requirements of traditional banks.
Saving a Bigger Deposit
Having a larger deposit can improve your chances of mortgage approval. Most lenders require a deposit of at least 5% or 10%, but a bigger deposit reduces the amount you need to borrow. This makes lenders feel more confident about approving the mortgage. It can also help secure a better interest rate, making repayments more affordable.
Getting a mortgage as a self-employed person is possible with the right preparation. Keeping financial records up to date, improving credit scores, using a mortgage broker, and considering alternative lenders can all make a difference.
