Self Employed Mortgage First Time Buyer

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Self Employed Mortgage First Time Buyer

Carolyn Dunion talks us through self-employed mortgages for First Time Buyers. 

Can I get a mortgage as someone who is self-employed and a First Time Buyer? 

Yes, you absolutely can. Obviously, it’s subject to the lenders’ checks for somebody who’s self-employed but being a First Time Buyer in self-employment should not stop you getting a mortgage.

How does getting a mortgage as someone who is self-employed and a First Time Buyer work? Is it difficult?

It’s not necessarily difficult, but we have to approach it differently. If somebody’s in a salaried position, we’ll usually ask what their annual salary is and ask for the latest three months pay slips. 

With self-employed people, we’re looking for a document called an SA302 or a tax calculation. Most people don’t pay much attention to these, but it’s a document you get from submitting your income on a self-assessment basis to HMRC. 

The form notes down all sources of income you’ve received, with self-employment being one of them. HMRC works out the tax that you’re due from there. Usually the lender will average the last two years of income as shown on those documents. Some lenders will consider one year. The income that’s shown will generally be treated as your salary.

How many years do you have to be self-employed to get a mortgage as a First Time Buyer?

A couple of lenders will consider it after one year, but a lot of self-employed people find that their first year doesn’t show particularly good income. That might reduce how much borrowing you can qualify for. 

But if somebody’s been in an employed position and has maybe gone freelance, and they’re earning the same amount of money, that fits perfectly. They’re just declaring self-employed income rather than PAYE. 

Generally, the vast majority of lenders will want to see the last two years of self-employed accounts.

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How much can I borrow for a mortgage if I’m self-employed and a First Time Buyer?

They will average the last two years’ income. It’s important to note that they won’t consider some income on that tax document. That includes anything that is not sustainable. Rental income isn’t always taken into consideration – it just depends on the source. 

Generally lenders will average the total of the income over the last two years. We treat that as if it were salary income and run it through the affordability calculator like we would for someone who’s employed. 

With self-employed people, there might be income that hasn’t been declared. For example, if somebody has put money into a business to set it up and they are taking that money back as a loan repayment, that will not show on an SA302 because there’s no tax due on it. 

So they’ve legitimately had that income and they’ve done it in a tax efficient way, but it won’t help them from a mortgage perspective. Ideally we will talk to clients before they submit a tax return and have a three-way conversation between us, the client and their accountant. We can discuss the best way of submitting their accounts to achieve a mortgage, if that’s their aim.

It’s not unusual for us to be involved in a discussion with somebody for a good number of months and even a year or so. Your accountant is trying to do everything as tax efficiently as possible, and that’s right and you would want that. But for a mortgage, you want your income to appear as high as possible. The more time we have to plan, the better.

How is a mortgage calculated for a self-employed First Time Buyer? What documents do they need? 

You do need those documents. Sometimes you’ll be asked for business bank statements to show that you’re still earning at the level that you’ve declared on your tax return. Sometimes they’ll ask you for audited accounts. It depends on the lender. But overall that SA302 is the most important document.

What if I have bad credit as someone who is self-employed and looking at my first mortgage?

If you have bad credit, we may need to go to a specialist lender. Some providers are more comfortable with a slightly more colourful credit profile. Being self-employed is not necessarily a problem, but we would probably struggle to get you a mortgage with just one year’s accounts. 

They would probably take a lot more interest in how the business was going, too. But it’s not impossible to get a self-employed mortgage if you have bad credit.

How can I improve my chances of getting a mortgage as someone who is self-employed and a First Time Buyer?

I would suggest that the minute that you think you would like to buy a property, to speak to somebody like me. Start planning for how much you want to borrow for a property that meets your needs. Also, have a conversation with your accountant because if everybody’s planning towards the same thing you will get the best outcome as quickly as possible.

How do I apply for a mortgage as someone who is self-employed and a First Time Buyer?

If we’ve had a conversation and we’ve got to the point where you’re ready to go and the figures are all where they need to be, it’s much the same as for any other first-time First Time Buyer. We’ll request the documents we need. 

Obviously, if you’re self-employed it’s the SA302 rather than pay slips, but the rest of the documents are the same. The mortgage products are the same too. We might go to a particular lender who’s more favourable to the self-employed at that particular time. But other than that the process is much the same as it would be for any other First Time Buyer.

What else do we need to know about mortgages for self-employed First Time Buyers?

The only other thing to say is that I speak to a lot of people who are self-employed and they are often fearful that they won’t be able to get a mortgage. Really, that’s not the case. It’s definitely worth having a conversation with somebody like me. It’s very possible. It just needs a little bit of thought and planning.

Your home may be repossessed if you do not keep up with your mortgage repayments.