Self Employed Mortgage First Time Buyer

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

Yes, absolutely. Being self-employed and being a First Time Buyer both come with their own challenges. Finding a mortgage when you’re self-employed is a challenge in itself, and if you’re a First Time Buyer attacking that on your own, again, that makes it more complicated. But we’re here to help you.

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

If you’re a First Time Buyer, the whole process is brand new to you. A lot of people get a bit confused about what they should be doing and how it works.

But it works exactly the same way as for anyone getting a mortgage. It’s based on what the lender is happy to lend you, looking at affordability and the evidence you can provide to them of your income, outgoings and whether you’ve had any bad credit.

If you’re self-employed it can certainly be more complicated, because of the way that lenders assess your income. They are all different in how they calculate affordability. If you’re employed, you just provide proof of your salary using a payslip. When you’re self-employed, there are a lot more hoops to jump through.

As a First Time Buyer, it’s not really difficult to get a mortgage, but if you’re also self-employed it’s more complex. Then, if you’ve had a few credit issues in the past, it’s going to be even more difficult. A lot depends on your circumstances.

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

This is one of the challenges. Typically you would need to have two years’ trading as self-employed – although some banks allow a minimum of 12 months.

To qualify for most mortgages, you would need two years because lenders take a longer term look at your income. Ultimately they’re taking more risk with you being self-employed, so they want to make sure that the level of income is sustainable.

If you are listening to this and you’ve only got 12 months, there is a possibility you can still get a mortgage, but ultimately two years is the magic number.

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

There are lots of different factors that are going to affect the answer to that question. One is how you are set up as self-employed – are you a sole trader, a limited company director or a partner?

The way you draw an income is going to be different depending on those factors. If you’ve been trading for one year, you may only have one or two lenders available to you. But if you’ve been trading for five years and your income is pretty steady, you can potentially borrow slightly because the lender is happy with the way your business is going.

How much you can borrow will also depend on how much deposit you’ve got and your financial commitments – such as paying car finance or high credit card balances. Your credit score is also important – whether you’ve missed payments before, for example.

Your age and how long you’re looking to take the mortgage for can also affect your borrowing. There isn’t a magic answer of four or 4.5 times your income – those are some of the maximum multiples that lenders use. But the real number will depend on lots of different factors – plus every bank and building society will then use their own methods to calculate what they’re happy to lend.

The best way to find that out is to either go directly to a bank and find out how much they’re willing to lend you – or even better, approach a mortgage advisor who has access to multiple lenders. We can do all those checks for you and let you know.

How is a mortgage calculated for self-employed First Time Buyers in the UK?

It depends on how you’re set up as a company – sole trader, limited company or a partnership. If you’re a sole trader, lenders will look at net profits. Typically they’ll take a two-year average. Some banks will use the latest year.

For a limited company, they may look at your salary plus your dividends. They may take an average, or they may look at salary and net profit, or profit after tax, or before tax. There are lots of weird and wonderful ways we can use your income and every lender is different.

The result you get from each lender can really vary.

This is where a mortgage broker can really come to the forefront. We can have a look at your accounts and work out which way is best to present you to the bank. It could be salary and net profit or salary and dividends. There’s many different ways we can look at it.

What documents do I need to apply for a self-employed First Time Buyer mortgage?

If you’re a sole trader or perhaps a partner in an LLP, usually you’ll need to provide an HMRC tax calculation. Once you’ve submitted a self-assessment tax return you’ll get a copy of that – it shows evidence of your total earnings from self-employment.

It will also include rental profit if you get that, or investment profit etc. The other document that couples with that is called a tax year overview, again that’s provided by HMRC when you do a self-assessment. You can download both of those yourself or get them from your accountant. Accountants will know exactly what you’re talking about – it used to be called an SA302 and some people still call it that.

If you’re a limited company director, some lenders will ask for your company accounts and use the figures there for turnover, net profit, corporation tax, director’s remunerations.

Obviously those two documents may not correspond exactly – one might be the fiscal year and one might be your company year. So there are different ways depending on the lender you’re approaching.

Some lenders are happy to use an accountant certificate or an accountant’s reference – a template form that your accountant can fill in. They will need to be fully qualified and registered.

You also often need to provide your business bank statements or for a sole trader, the account you use for your business income. They can then see that your business is still going in the right direction since your last tax return.

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

Most of us have had the odd blip – we’ve discovered a CCJ or we’ve run into a few problems. But if you’re self-employed and a First Time Buyer, then we add bad credit into the mix, it is a challenge – there’s no denying that.

But the good news is there are quite a few banks that accept things like missed payments or a CCJ – or anything up to a bankruptcy. These are more specialist lenders rather than high street banks. So if you’ve got bad credit or a low credit score, it doesn’t mean you can’t get a mortgage.

It’s just a bit more of a challenge with a few more hoops to jump through. But using a mortgage broker will really help with that.

How do lenders calculate my income as a self-employed First Time Buyer?

The evidence you provide is the line. There are many different factors that will play into that.

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

There are things here. Preparation is key – having your accounts or your self-assessments in order will save you a lot of stress. Check your credit file, and again this is something a mortgage broker can help with in terms of understanding your credit report.

We can also help with understanding your accounts. If you’re self-employed, it’s a real challenge to attack this by yourself because each bank assesses you very differently. Ultimately, you can come up with very different results.

A mortgage broker that has access to multiple banks and building societies will help you massively, particularly if you’re trying to get the borrowing that you need.

How do I apply for a mortgage as a self-employed First Time Buyer?

You either apply for a mortgage directly from a bank or building society, or through an intermediary like a mortgage broker. We research your options, get to understand your circumstances, gather all the evidence we need and understand what’s important. That way we can advise you on the way forward.

We compare the options from over 55 lenders across the market. Getting you the best deal as someone who’s self-employed is not always about getting the lowest interest rate or the cheapest deal.

It’s about making sure we’re providing you with the options you need. If your priority is to borrow more, we need to find the bank that will lend you the most. Or if you’ve been trading for two years but your first year was really low, you need a lender that’s going to look at your second year rather than an average of both.

These are the areas where a mortgage broker’s experience can add massive value – it means you might be able to get on the property ladder sooner than you thought. I’ve helped lots of clients who have been turned down by a bank, or haven’t quite got the mortgage amount they need.

Just have a conversation – you have nothing to lose, but you might gain quite a lot from just chatting with a mortgage broker to see what your options are.

Approved by The Openwork Partnership on 20/02/2024.