The new lending rules introduced by banks as a result of the pandemic have made it much more difficult for self-employed people to get a mortgage.
As the incomes of self-employed people tend to fluctuate more, banks rate loans to such people as much riskier.
However, there are things you can do to increase your chances of getting a mortgage.
Bank requirements may vary based on your employment status:
- Self-Employed: Banks typically require two- to three-year accounts showing income, expenses and operating expenses (preferably signed by certified accountants) and three- to six-month bank statements. Lenders can also request a 2–3-year SA302 forms and Tax overview from HMRC. Lenders will consider your earnings and may require evidence (e.g., current and future contracts, customers) that similar amounts will be earned in the future.
Directors of Ltd companies: those who work through their Ltd company and receive salaries from it are considered as Self-employed persons. Your income can come in the form of wages and dividends. Banks will consider both income components and you will need to provide at least two years of company income statements.
How can I make myself more attractive to lenders?
1. Create a credit history. At least a year before taking out a mortgage, check your credit history with more than one credit rating agency, e.g. Equifax, Experian or TransUnion. And follow the steps to help raise your credit rating.
2. Manage costs: Banks will look closely at your bank statements, and costs such as online betting will not be viewed favourably.
3. Be organized - arrange income statements as soon as possible after the end of the financial year - banks can look much more favourable when reports are prepared on time. Also look ahead - even if eligible expenses can reduce your income, and at the same time - income taxes, it can also reduce the amount of your loan.
4. Find an Accountant - Some lenders require income statements to be signed by a certified accountant. They will also make sure that there are no errors in the reports.