What to consider when applying for a mortgage if you’re self-employed
Nearly 20% of workers in the UK are self-employed or on fixed term contracts. Working for yourself typically means that it might be harder to get a mortgage, as a lender may question your ability to receive regular income in order to make your monthly mortgage repayments. However, it’s not impossible for someone who is self-employed to borrow money to purchase a home.
How can you show lenders that you’re confident you can make repayments?
Lenders’ confidence in your ability to make repayments can affect your ability to obtain a mortgage or, if you’re successful, what sort of deal you’ll get. If you’re self-employed, here are some ways that could help improve your creditworthiness in lenders’ eyes:
- Show proof of company accounts, SA302 forms or tax returns going back at least two years.
- Spend less in the year before applying for the mortgage. Lenders tend to assess your regular expenditure, like on food or telephone bills.
- Save enough to be able to apply for a mortgage with a larger deposit.
- Make sure that your credit rating is in order. You may want to check your Equifax Report & Score – which is free for the first 30 days, then £14.95 monthly. The score gives you an indication of how creditworthy the lender may find you – if this is poor, you may want to improve it before applying for a mortgage. The report gives you a view of your credit history.
- If you’re a contractor, you may have to provide proof of future billings, in order to reassure lenders that you can keep up with repayments.
If you can’t manage one or more of the above, bear in mind that there is no one-size-fits-all method to obtain a mortgage, as lenders assess individual applications based on a number of factors. It is possible that a lender may still grant you a mortgage – however, you may want to balance this against the risk of making applications that are unlikely to be successful, which could leave behind hard application search marks on your Equifax Credit Report for a year. This means that, if you make another credit application that year, lenders may think that you’re desperate for credit, having applied so many times. Because of this, you may want to get your paperwork and financials in order before you apply for a mortgage.
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