How do I get a mortgage as a self-employed contractor?
As a self-employed contractor such as an electrician, there may be some concern as to how your income and job role can affect a mortgage application.
Although there can be extra considerations compared to other forms of income, a mortgage should still be very accessible for a contractor working on a self-employed basis.
Below we will answer some frequently asked questions related to accessing a great mortgage deal as a self-employed contractor.
Can I get a mortgage as a self-employed contractor?
Yes, a self-employed contractor will be able to access a mortgage loan and from a variety of UK lenders in most cases.
This will involve the same considerations as with any mortgage. Lenders will assess income, credit history, affordability criteria and other factors when deciding whether to approve a prospective borrower’s application.
Though areas such as income may be slightly different, there will be ways in which a lender can assess this by looking through accounts. As long as all business accounts are up to date, you should still be able to sufficiently evidence your income.
Usually, lenders find it preferable if contractors have accounts covering 3 or more years but will still consider applications with less than this. Whether those applications will be approved, is down to the policies of the individual lender.
If struggling to access a mortgage through a particular lender, compare deals across the market and speak to other mortgage providers. With a wide range of providers operating currently, even if one lender declines the loan there may be others who are still willing to lend to you.
For more information about contractor mortgages CLICK HERE.
How do I access a mortgage as a self-employed contractor?
You will access a mortgage in much the same way as any other applicant. There will be several things a mortgage provider (building society, bank or specialist lender) will consider before approving a loan application. These include factors such as:
- Credit history
- Affordability checks
- Amount of loan requested
- Value of property
With a self-employed contractor, the lender will most likely also question:
- Proof of income
- How the income is earned (e.g. salary, profits, dividends)
- Amount of deposit saved
- How long you have been self employed? 3 or more years?
- Is your income stable?
- If a business owner is your business financially viable and profitable?
All of these questions are simply intended to allow lenders a better overall picture of your financial history. This means they can make a fully informed decision before approving a loan.
For even more information on how to secure a mortgage, you can read our full guide on this topic by clicking HERE.
How do lenders assess a self-employed contractor’s income?
For a self-employed person, evidencing your income can be slightly more complicated than with those employed through another business or company. Generally, though, lenders will still be able to assess your income.
You will need to supply evidence of accounts, ideally over as long a period of time as possible. A good way of doing this will be to supply the lender with a copy of your SA302 (self assessment tax return).
There will be certain requirements for self-employed mortgages. Lenders will have different policies related to how long the business has been trading for as to whether you will qualify for a mortgage – the longer the business has been established for the better.
If a self-employed person’s business and income has been steady and stable for several years this will be preferable to lenders. This is because the application will seem less risky than with a more unstable or newer source of income.
This doesn’t mean accessing a mortgage will be impossible if you have been self-employed for less time than this. It will probably be worth speaking to a mortgage specialist or broker in this case to find the right deal, as certain lenders may charge higher rates for newer businesses.
For more information on self-employed mortgages CLICK HERE.
For information on using an SA302 to evidence self-employed income, CLICK HERE for our extensive guide.
Will being self-employed cause issues with my mortgage application?
It can be a serious concern for self-employed people that their employment status may cause issues with securing a mortgage.
This is not the case. There is no preferential treatment for those who are employed through bigger businesses versus those who are self-employed.
Lenders will go through the same checks as with any other mortgage application and as they are heavily regulated through the Financial Conduct Authority (FCA), there will be no bias in this process.
In most cases, the lender will request:
- Profit projections for the coming year
- 2 to 3 years worth of accounts (if possible)
- SA302 forms or tax-year overview
- Profits/dividends evidence
- 3 months worth of bank statements
- Information and reference from your accountant
As long as this information can be supplied, there should be no major issues with the mortgage application.
They will also take into consideration the business structure – whether you are a limited company, a partnership or a sole trader.
Each of these will come with different considerations. Generally any one of these business types should not cause issues with accessing a mortgage, as long as correct and sufficient evidence of income is provided.
How does the interest rate rise effect contractor mortgages?
Recently, the Bank of England (BoE) decided to increase the base interest rate charged in the UK from 1.25% to 1.75%. With a rise of 0.5%, this is a significant increase.
The rise in interest rates will have an effect on a lot of mortgage deals moving forwards, as all mortgage loans will incorporate an interest element in the repayment plan. There are ways to still ensure you receive a favourable rate – the main one being comparison across lenders.
The inflation of interest rates will affect the base standard variable charged by a lender, but these rates can be set at the lender’s discretion. This means there will be some mortgage providers that will have lower rates in place than others so research is key to finding the most competitive pricing.
You can also opt to take out a fixed-rate mortgage, meaning the amount of interest charged on the loan will be set at a fixed price for a certain period of time. This will usually be 2, 5 or 10 years. This can help buyers protect themselves from further interest rate increases for this amount of time.
Who is the best lender for a self-employed contractor mortgage?
The best lender for any mortgage will ultimately depend on the type of mortgage required (buy to let, joint mortgage etc) and the rates of individual lenders at the time.
The best way to find the most favourable mortgage deal and lender is by comparing all of the deals available on the market currently. With so many lenders available, some will have better rates than others.
A specialist in self-employed contractor mortgages will be best placed to offer advice and source information on the best possible lenders for each specific applicant and their business.
Is it worth speaking to a mortgage broker or specialist?
If concerned about your profession in relation to getting a mortgage, it is always a good idea to speak to a mortgage specialist such as us. A specialist in contractor mortgages will be able to:
- Compare deals across lenders to find the most favourable pricing
- Save time and hassle by speaking to lenders and sourcing information on your behalf
- Can potentially access better rates due to pre-existing relationships and agreements with lenders
- Have experience in packaging contractor mortgages
We have over 20 years of experience in securing mortgages with excellent rates for contractors working on a self-employed basis (or running their own business).
We are experts and able to compare pricing across a variety of lenders UK-wide to find the most competitive prices possible.
Useful resources
Below we have linked some useful resources related to the topics mentioned in this article:
