What are the documents needed for a self-employed mortgage?
To be approved for any mortgage, lenders will need proof of several elements. Some are obvious, and some, well, they’re not so obvious. Some are easy to acquire and provide, and again, other pieces will take a bit of tracking down.
When it comes to providing the required information when your self employed, slightly different rules apply.
What is a self-employed mortgage?
It’s a myth! Self-employed mortgage seekers apply for precisely the same mortgage products as any employed applicant on a PAYE salary.
The only difference between those applications is how their income information is collected. Calculating the average income and earning reliability of anyone without a regular weekly or monthly payslip makes life that little bit trickier for mortgage providers.
Because of that, the term ‘self-employed mortgage’ has been utilised for years. It’s nothing to do with the product but simply a way of letting the self-employed market know they’re happy to provide them with the mortgages they need.
Averaging a salary from fluctuating figures
Without a reliable pattern or guarantee of the same weekly wage, lenders need an alternative method to determine an annual income. Self-employed earnings fluctuate, so painting a realistic picture of how they average into a quantifiable income means examining the documents that show the data each lender needs. So, typically, for the self-employed, the documents needed for mortgage applications are relatively similar to everyone else’s apart from a few apparent exceptions covering their income.
If you think self-certification is still a thing, where have you been?
If the last time you applied for a mortgage as a self-employed worker, you submitted your income estimations with nothing to back them up, and the banks were fine with that, you need to get up to speed with what’s going on in the 2020s.
Self-certification mortgages—where that actually happened—were banned outright in 2014 because, as you can imagine, applicants were fabricating their figures to get the best possible deals, the largest loans, and without providing any proof.
The documents needed for a self-employed mortgage
Given that the only real difference is how applicants provide their proof of income, there are still the standard documents everyone needs to provide, and then those that show how much they earn.
Standard documents needed for a self-employed mortgage include:
Photo ID – A current driving licence or passport to prove you're who you say you are.
Proof of address – You need a paper copy of a utility or council tax bill or a bank or credit card statement that matches your photo ID address.
Proof of deposit – A savings account or other bank statement that shows you’ve accrued the amount of deposit you plan to put down against your mortgage.
Proof of outgoings for your affordability assessment – Lenders don’t just want to see how much you earn but also how much you spend to work out what’s left at the end of each month and whether you can afford their repayments.
Life insurance policy – Although it’s not mandatory for all lenders, some will only accept applications with protection in place. Even if you’re employed, it still makes sense to have insurance in place to protect your mortgage—after all, none of us knows what’s lurking around the next corner…
Maximise your credit score for the best offers
Lenders will ALWAYS consult your credit report to find out how you handle money and if you’ve got any big black marks against you. If you can clear any outstanding debt or loans, that can help boost your considered available credit limit.
If you need to do a bit of spring cleaning, do it, and ensure that you’ve covered the basics to achieve your best possible score.
You’re on the electoral roll at your current address.
Always pay your bills and credit cards on time.
Pay off any existing debts where possible.
Don’t take out any additional credit.
Stay within 50% of any credit, store, or credit card limits.
Proving your income to the mortgage lenders
As a limited company director:
You’ll have a personal income and dividends as proof of your basic income, but that’s not always the accurate picture of your earning potential you’d like your mortgage provider to see. That’s why many lenders will be happy to consider the business's net profits and proof of retained profits in their calculations.
Additional documents needed for a self-employed mortgage if you’re a limited company director include:
Company accounts for the previous two or three years
HMRC Tax Year overviews, calculations, and self-assessment accounts, where applicable
Director salary payslips
Dividend drawdown vouchers
Business and personal bank statements for a minimum of three previous months
As a business partner:
You have to own more than 25% of a business to use your income from a partnership to support your mortgage. Your share of net profits is added to your basic salary, providing similar evidence to that of the limited company director.
Additional documents needed for a mortgage, self-employed as a business partner include:
Proof of income for two or three years in the form of business partnership accounts
SA302 HMRC forms or a tax year overview for the past two or three years
Bank statements for both business and personal accounting
As a sole trader or freelancer:
A sole trader or freelancer should find it a little easier to provide their proof of income, as all the money they make is theirs and dictates their equivalent salary.
Additional documents needed for a mortgage, self-employed as a sole trader or freelancer include:
Business accounts – preferably prepared by a registered accountant
SA302 HMRC forms or tax year overview for the past two or three years
All relevant bank statements
As a contractor:
Lenders will determine a contractor’s income similarly to that of the freelancer. Some will use the contractor’s day rate to calculate a basic annual salary, but they still expect to see evidence to back up their figures.
Additional documents needed for a mortgage, self-employed as a contractor include:
SA302 HMRC forms or tax year overview for the past two or three years
Contracted day-rate evidence
Future confirmed/signed contracts to prove continuing income security
How can CLS Money help self-employed mortgage applicants?
With every completed mortgage application impacting your credit report and score, it’s beneficial to your borrowing health to narrow down your application to one that’s guaranteed or as near as possible; working with a mortgage broker like CLS will help you achieve just that.
We work with every type of lender and applicant, so we’re perfectly placed to get your applications accepted once we’ve found you your ideal mortgage. We help you collate the documents needed for a mortgage, if self-employed or otherwise.
Contact one of our specialist advisors today. You could be climbing the property ladder soon than you think!