High street lenders tend not to offer mortgages to the self-employed, contractors and freelancers without considerable paperwork and delay, so finding the right mortgage lender for your circumstances can be daunting.
More recent updates to IR35 have led to many limited company contractors turning to umbrella contracting. An umbrella company is a company that employs agency contractors who work on temporary contract assignments.
You may be mistaken to think your irregular income or lack of three years’ worth of accounts means you automatically don’t meet the requirements for a mortgage. So, if you’ve been put off from applying, it might be time to reconsider.
Self-employed buyers (including sole traders, contractors, partners and directors of limited companies) have access to the same range of mortgages that any other buyer has. If your finances are in good order and you can prove you have a regular income, self-employment is unlikely to cause your application to be rejected. You’ll simply need to provide different documentation, and perhaps more evidence of your income, than a buyer who’s in regular employment.
Mortgage providers will ask you for evidence of your income for the last two to three years, as they would ask any other applicant. How you do this depends on how you are currently self-employed.
You’ll need to supply the same documentation as anyone else as part of your application (for example, proof of identity and address), as well as some additional documents. Exactly what you’ll need to supply depends on your mortgage provider and your self-employment status, but you might be asked for any of the following:
While there’s no reason to be pessimistic about your chances of mortgage approval, you should also know that mortgage refusals can temporarily affect your credit score and therefore make your next application slightly more difficult.
Make sure that you’re on the electoral roll, as mortgage providers will use this to check your identity. You’re likely to be rejected if you’re not registered.
Being self-employed makes it even more important to show that you’re good at managing your money, so you need to be aware of anything in your history that indicates otherwise.
Make sure all your accounts are up to date, with no overdue bills or repayments. Your credit card doesn’t need to be fully paid off but check that you’re not close to your credit limit.
There are certain types of credit, including payday loans, that look bad to mortgage providers. If a recent payday loan will show up in your credit check, you might choose to wait for a while before making your mortgage application.
Mortgage providers prefer borrowers with larger deposits. Waiting until you have substantial savings will help your application. If family members are contributing to your deposit, make sure the money is ready to go before you apply.
Obtaining a mortgage if you are self-employed, a contractor or a freelancer is often less straightforward than for those people in full-time employment. So, it pays to seek advice from a mortgage broker with expertise in self-employed borrowing.
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