Many self-employed individuals in the United Kingdom face unique challenges when applying for a mortgage. Traditional lenders often consider self-employment income to be less stable compared to salaried employment. However, with proper planning and understanding of the mortgage process, obtaining a mortgage is certainly possible. Here’s a guide on how to secure a mortgage with a history of self-employment.

Understand Your Financial Situation

The first step in obtaining a mortgage is to have a clear understanding of your financial circumstances. Lenders will closely examine your income, expenses, and financial history. Keep your financial documents in order, including:

• Tax returns from the past two to three years
• Profit and loss statements
• Bank statements
• Business accounts, if applicable

Being organized and transparent about your finances will help build credibility with lenders.

Calculate Your Income

Lenders often look at your average income over a period rather than a single year’s earnings. If your income fluctuates, they may consider the last two to three years’ worth of income as your potential earning capacity. Be prepared to provide documentation that outlines your earnings accurately. This may include:

• Your latest P60 form or self-assessment tax return
• Business bank account statements
• Invoicing and receipts

Improve Your Credit Score

Your credit score plays a significant role in securing a mortgage. A higher score increases your chances of being approved and obtaining favourable terms. Ways to improve your credit score include:

• Paying bills on time
• Reducing existing debts
• Avoiding multiple loan applications in a short period

Checking your credit report regularly can also help you catch any errors that could negatively impact your score.

Consider Mortgage Lenders Specializing in Self-Employed Borrowers

Not all lenders offer the same products or have the same criteria. Some lenders specialize in providing mortgages for self-employed individuals. Research lenders that are known for their understanding of self-employment income, and compare their products, rates, and terms. It may also be beneficial to use the services of a mortgage broker who has experience with self-employed applicants.

Save for a Larger Deposit

A larger deposit can help offset a lender's risk. While the standard deposit is often around 10-20%, if you can save up to 25% or more, you may improve your chances of approval. A more substantial deposit can also lead to better mortgage rates, saving you money in the long run.

Be Ready to Explain Your Business

When applying for a mortgage, be prepared to explain your business model and how you generate income. Lenders may ask for details about your experience, industry trends, and estimated future earnings. Providing a clear narrative that outlines the stability and growth potential of your business can enhance your application.

Consider Additional Forms of Income

If you have other sources of income such as rental properties, investments, or freelance work, include these in your application. Showing multiple streams of income can strengthen your case, demonstrating to lenders that you have the means to make mortgage payments even if your self-employed income fluctuates.

Be Patient and Persistent

Lastly, it’s essential to be patient throughout the mortgage application process. It may take longer for self-employed applicants to get approved than those with traditional employment, but persistence pays off. If your application is initially rejected, don’t lose hope. Consider the feedback you receive and adjust your application accordingly.

By understanding your financial situation, improving your credit score, targeting the right lenders, and being prepared to demonstrate the stability of your self-employment, you can increase your chances of successfully obtaining a mortgage in the UK.