Mortgage self-employed

How to get a mortgage if you’re self-employed

If there’s one common conception in the mortgage industry, it’s that borrowing to buy a property while you’re self-employed is very tricky indeed. In fact, buy-to-let mortgages for self-employed people often prove elusive, with lenders asking you to jump through hoops to gain access to borrowing. But just how hard is it to get a mortgage in the UK if you’re self-employed, and is the landscape for those ‘doing it for themselves’ changing?

In this guide, we’ve got everything you need to know about getting a mortgage if you’re self-employed. 

What are the self-employed buy-to-let mortgage rules?

Getting a mortgage as a self-employed person can be a bit more challenging than for someone who has a traditional job. This is because the rules for lending money changed after the COVID-19 pandemic, making it harder for banks to lend money to self-employed people.

Banks are trying to reduce their risk, and because self-employed people often have a more unpredictable income, they are being more careful about who they lend money to.

Some banks will only lend up to 4.49 times a self-employed person’s yearly income and might require a deposit of 40% or more. But don’t worry, there are still lenders who are willing to offer more favourable mortgage options for self-employed people. So, it’s important to look around and find the right one for you.

Here’s what you need to get a mortgage if you’re self-employed

Self-employed mortgage requirements in the UK

If you’re self-employed and want to get a mortgage, there are some things you’ll need to have to be approved. Different lenders may have different requirements, but generally, you’ll need to provide the following information:

  • 2 or more years of financial records that have been certified by an accountant
  • SA302 forms or a tax year overview (from HMRC)  for the past 2 or 3 years
  • Proof of any upcoming contracts you have if you’re a contractor
  • Evidence of any money you have received as dividends or profits if you’re a company director

In addition to showing your income, you’ll also need to prove your identity with:

  • Your passport
  • Driver’s license
  • A bill for your council taxes
  • Utility bills from the last 3 months
  • Bank statements for the last 3 to 6 months

Having all this information ready will make the process of getting a mortgage easier and faster.

Self-employed mortgage calculator

When you’re trying to get a buy-to-let mortgage, it’s important to know how much you can borrow. This can be determined by using a mortgage calculator. You can find these online and they usually just need some basic information from you; like how much money you want to borrow, how much you have for a deposit, and your yearly income. 

Keep in mind that the results from a mortgage calculator are just an estimate and aren’t a guarantee of what you will be able to borrow.

Online mortgages for self-employed

If you’re considering using an online mortgage lender to finance your buy-to-let investment, it’s important to note that while the process may be quicker, you’ll still need to meet the standard requirements. 

At Molo, we offer a streamlined and efficient mortgage experience by delivering the entire process online. This eliminates the need for paperwork or time-consuming in-person appointments often used by traditional lenders, allowing you to get your mortgage approved and funded much faster.

Mortgage deposit for self-employed

The average mortgage deposit for a self-employed borrower looking to purchase a buy-to-let property in the UK is similar to the deposit required for employed borrowers, which is around 25% of the property’s purchase price. However, the deposit requirement can vary depending on the lender and your circumstance. 

If you are in a position to put down a  larger deposit this would  reduce the loan-to-value ratio and may  make you a more attractive borrower to lenders, potentially leading to lower interest rates and cheaper monthly payments, as well as a lower overall cost of borrowing over the life of the mortgage.

By making a larger deposit on a buy-to-let property, the amount borrowed is reduced, which can result in lower monthly mortgage payments. This can allow the rent charged to tenants to cover a larger portion of the mortgage, freeing up more money for other investments, potentially leading to increased investment returns. Always speak to a financial advisor for investment advice.

How to build credit as self-employed

Credit score for self-employed

A good credit score plays a major role in the mortgage deals available to you – the better your score, the lower the interest rates. Even if you don’t currently have a great credit score, all is not lost. You can do specific things to boost the number and get it moving towards the ‘excellent’ category.

These include:

  • Making sure your file has the correct information about you
  • Paying things like credit cards and utility bills on time
  • Not using too much credit
  • Being registered on the electoral roll
  • Closing unused accounts
  • Using a credit-building website to improve your score

Molo for self-employed borrowers

At Molo, we offer  digital mortgages, whether you’re employed or self-employed. Take a look at our criteria to see if you’re eligible and begin an entirely online mortgage application without any paperwork or appointments. 

Final thoughts: Doing it for yourself with a mortgage

Getting a buy-to-let mortgage as a self-employed person needn’t be a headache. There are lenders out there offering competitive rates and supporting the cause of professionals working for themselves, including Molo. From your point of view, you should ensure you have all the details to hand and understand the requirements with the lender. Then you can think about getting the keys to your new property.

The content of this page is for reference and does not constitute financial advice.

Related posts