Getting a mortgage whilst self-employed

When I bought my current home I had been employed for many consecutive years, brought home a decent regular wage, and had the luxury of applying jointly with my boyfriend who was in a similar situation. Everything was rather straightforward, and we had our pick of lenders.

Four years on, things have changed somewhat. I’m now self-employed – starting out as a sole trader and switching to a limited company just over a year in, and the process was much different. I happen to be going through the house purchase process again at the same time as some of my close friends, and whilst everyone’s situation is very different, I wanted to share our stories and my experience of being self-employed with regards to getting a mortgage.

My mortgage tale

I first started thinking about moving house late in 2014, and it has been a lengthy process. This isn’t all due to the mortgage, but it didn’t help. For reference, I was employed until December 2012, a sole trader from January 2013 until March 2014, and have operated as a limited company ever since. I have ended up with a high street lender, Woolwich (Barclays), and these are the key points that were relevant to my personal situation.

Lenders and their requirements

Most high street banks will require a minimum of two years of accounts, and crucially some will not consider a year of being a year of sole trader and one as Limited as being two consecutive years. This ruled out many banks for me.

Certain banks will flex their requirements based on how well they know you – for example HSBC informed me that they would require two years for customers whose wages were paid in regularly to an HSBC account, and 3 years otherwise.

Initially I heeded the common advice, which is to get an independent advisor as they often know about other options available. I have no doubt that this works well for many people, but on calling up the same advisor that we had used for our current mortgage, we were basically told that it was pointless applying to anyone. They were all round very dismissive, so I decided to sack them off and enquire directly instead. This is the opposite to what was found useful by my friend Paul – read on for more about that.

Woolwich are my current lenders (which seemed to help), and myself and my boyfriend between us have multiple accounts with Barclays. They had good rates for us, and told me that my two individual years would be accepted as concurrent. We received some contradictory advice from the three people we ended up speaking to with regards to exactly what would be required as proof, and when – initially they asked for a lot more information just to get the agreement in principle, however after our original advisor was away on holiday and I had called to get an appointment booked in, I was told we could get the agreement in principle online with no initial documentation. Some of the messaging online is also contradictory, stating “If you have self-employed income, please call us on the number below“, but if you ignore this and proceed to the actual online process (as I was advised by the person on the phone) it allows for self-employment with no problems.

Following a successful agreement in principle, we then called up to book in a proper application, and were assigned an extremely helpful lady who ran through all of her questions and asked to see scanned copies of documentation. In the end, we were sent the below email requesting the following items, but during the actual call our advisor only then asked for the ones marked below with an asterisk.

 

“In order for us to give you an idea of whether we will be able to meet your needs it is important that you have the following documents to hand – please note that we will not be able to proceed without them:

If employed
Latest 3 months payslips, last 2 years P60 (*)

If self-employed (applies to Residential AND Buy To Let applications)
Last 2 years SA302 (*)
OR
Last 2 years HMRC Self-Assessment Tax Calculation – following a self-assessment Tax Return, this shows the taxable income and the tax that is due

PLUS
Last 2 years HMRC Tax Year Overview – this shows what tax has been paid by an applicant to HMRC for a given tax year. This document should show that the tax liability for the financial year being considered has been paid in full.
OR
Audited accounts for your last year – signed by accountant and company director, a company stamp is not sufficient PLUS HMRC Tax Year Overview for your previous year (* – I was asked to provide audited accounts for both my freelance and Ltd years, plus the HMRC Tax Year Overview as above for both years. Thankfully my lovely accountant didn’t charge me to run off some accounts for my sole trader year, as due to their simplicity he had originally just done a tax return. They also sent me a physically signed copy of both documents, as the ‘signed’ aspect seemed to be required in the traditional sense.)

Any Other Income

  • Working Tax Credits – HMRC tax credit award letter (all pages)
  • Child Tax Credits – HMRC tax credit award letter (all pages)
  • Child Benefit – DWP Child Benefit letter.

For all cases

  • Latest 3 months bank statements (My boyfriend’s current account is with Barclays so they could see that and our joint account statements, but they never asked to see any of my bank statements.)
  • Latest mortgage statement (if existing mortgage is in place) (* – as it was with them they had access to this)
  • Proof of existing Buy to Let mortgages (if applicable)
  • Details of existing credit commitments
  • Repayment vehicle (if interest only)
  • Property details, as well as solicitor details, if applicable (*)
  • Contact details for person liaising with the surveyor, usually the estate agent or vendor (*)
  • Existing Life, Critical Illness & Home Insurance policy details (*)

For Buy to Let cases

  • Current Tenancy Agreement (for rate switch only)
  • If employed – Latest payslip for each applicant and employers name/s & address/es
  • If self-employed – As shown above under If self-employed
  • Property details (including remaining lease term, if applicable)
  • Estate agent & solicitor details
  • Rental income
  • Credit or debit card details (for fees)
  • Direct debit information (for monthly mortgage payments)

Points to remember:
It might be necessary for your advisor to briefly call prior to this appointment to check details
Your advisor will need to speak to any joint applicants prior to any application
Please do not send these documents via email as we are unable to accept electronic copies”

<p>
  Note that despite the final paragraph, we were asked by the advisor to email over scans of the documents she wanted to see. We also had to provide a scan of our passport and driving licence, although I understand bills (excluding mobile) can be used for this. I also proactively sent a screenshot of my bank accounts (as much as that is evidence!) to show that I had more cash in the bank than I was putting up for deposit, in case this helped them to see me in a more favourable light and to provide some security that I could still pay the mortgage for a long time even if I had no work.
</p>

<p>
  Each bank will likely want something different, and this will always be based on your own individual circumstances.
</p>

<h3>
  But I don&#8217;t have two years of accounts!
</h3>

<p>
  I asked my friend <a href="http://www.iwearglasses.net/" target="_blank">Paul Swain</a> to write about his experiences, as he had only just started working as a contractor when he decided to try to get a mortgage. His <a href="http://www.iwearglasses.net/blog/contractor-mortgages" target="_blank">blog post on the subject</a> sums up his situation very well, with the summary being that if you really want to, you can get a mortgage with only a copy of your current contract and letter confirming future working days, however it&#8217;ll be at the expense of a competitive rate. It all depends on your priorities.
</p>

<h3>
  How much can I borrow?
</h3>

<p>
  As with most people, my first call to work out what we could afford was a mortgage calculator. You&#8217;ll find that most of these aren&#8217;t designed for the self-employed, and simply ask for your annual salary.
</p>

<p>
  When self-employed, the annual salary considered by most lenders will be the average of your last few years income (if your income has increased or stayed the same), or they will take the lower value regardless if your income has fallen.
</p>

<p>
  As my income had fallen last year after an unexpectedly good first year, I was initially asked to write a &#8220;<em>A detailed explanation of why the income from the Limited Company was lower for the tax year ending April 2015 than April 2014</em>&#8220;. I outlined reasons including spending a lot of time on conference talks, writing a book, and a refocus on direct client work rather than exclusively subcontracting for agencies. In the end however, this was never needed, so I can&#8217;t comment on whether that would have been acceptable to them.
</p>

<p>
  This is slightly different to how I understand that it works for longer term contractors like Paul, as in this case they use your agreed rate to project what your income is likely to be over the year.
</p>

<h3>
  Getting the documentation
</h3>

<p>
  The most time consuming parts of the mortgage process were waiting for the end of the 2014/2015 tax year, getting my accounts back, and then waiting for the SA302s to be returned from HMRC. Apparently some lenders may accept the HMRC Tax Year Overview documents and not need the SA302, but as above I needed both as well as my signed accounts. Woolwich will cancel your appointment if you don&#8217;t have everything they want in hand, and we had to cancel one appointment as the SA302s still weren&#8217;t with me and they refused to do the call. You will read a lot online about the turnaround of SA302s, and mine took <em>ages</em>. Despite checking with HMRC that they had been &#8216;posted&#8217; they weren&#8217;t received for almost two weeks following the date they said they had been sent out. Worth factoring in if your purchase is time critical.
</p>

<h2>
  The result
</h2>

<p>
  Despite a lengthy process I now have an agreed mortgage with a rate that I&#8217;m happy with. Whilst contracting does throw up some large hurdles, getting a mortgage isn&#8217;t the impossible situation that many make it out to be. My tip, as Paul recommended, is to do your research. Speak to people, check out your options, and make sure that the products being offered to you are worthwhile. In some cases it may be worth waiting to get your magical two or three years of accounts, in others it may not.
</p>