Securing the best mortgage deal can be a daunting prospect, especially for the self-employed. Without the regular income proof that salaried employees can provide, you might worry about meeting lenders' criteria. However, with the right preparation and understanding of what's available, securing a favourable mortgage—whether you’re a first-time buyer or looking to remortgage—is entirely achievable. Here’s a practical guide to navigating the mortgage landscape as a self-employed individual.

Understanding lender requirements

The first step to securing a mortgage when you're self-employed is understanding what lenders look for. Typically, lenders will ask for:

1. Proof of income: This can include your tax returns (SA302), trading accounts, and profit/loss statements. Most lenders will require two to three years of accounts to show income consistency, although we understand that not every business owner fits this ‘norm.’ Our specialist team can help even if you have less than two to three years accounts.

2. Credit history: A good credit score is crucial. Lenders will check your credit report for any red flags that might indicate a risk in lending to you.

3. Debt-to-income ratio: This ratio measures your total monthly debt against your total monthly income. A lower ratio generally makes you a more appealing borrower.

4. Deposit: Generally, the bigger the deposit, the better your chances of securing a mortgage with favourable terms.

Preparing your application

Preparation is key when applying for a mortgage. Here’s how you can prepare:

• Organise your finances: Ensure your business accounts are up to date and in good order. It might be worth hiring an accountant to prepare your financial statements and ensure everything is meticulously documented.
• Boost your credit score: Pay off outstanding debts and avoid new debt in the months leading up to your mortgage application. Check your credit report for any inaccuracies and dispute them if necessary.
• Save for a larger deposit: The more you can put down initially, the less risk the lender assumes. This can also help you secure a lower interest rate.
• Maintain a healthy business: Show that your business has steady or increasing income. Dips in income can be a red flag for lenders, so it’s beneficial to apply when your business is doing well.

Choosing the right mortgage

As a self-employed individual, you have several mortgage options:

1. Fixed-rate mortgage: The interest rate is fixed for a period, making this a good option if you prefer predictable payments.

2. Variable-rate mortgage: The rate can change based on the economy and the lender’s interest rate, which might be beneficial when rates are low.

3. Offset mortgage: Links your savings account to your mortgage; the money in your account is offset daily against your mortgage balance, reducing the interest you pay.

4. Joint Borrower/ Sole Proprietor: A third party (usually a family member) agrees to cover the mortgage payments if you can’t.

Research the different types of mortgages and consult with a mortgage adviser to find the best fit for your situation.

Tips for first-time buyers

If you’re a self-employed first-time homebuyer, here are additional tips to help you through the process:

• First-time buyer programs: Look into programs that offer lower deposits or tax advantages for first-time buyers.
• Government schemes: Consider schemes like Help to Buy, Shared Ownership, or others designed to help first-time buyers get onto the property ladder.

Tips for remortgaging

For those looking to remortgage, consider the following:

• Equity: Understand how much equity you have in your home, as this will affect your loan-to-value ratio and the deals you might get.
• Current mortgage deal: Review your existing mortgage to see if there are any penalties for switching before the term ends.
• Market research: Check the current market to compare different mortgage deals and rates. Sometimes staying with your current lender and negotiating a new deal can be advantageous.

Navigating the challenges of self-employment

Being self-employed comes with unique challenges in securing a mortgage, but there are ways to navigate these:

• Understand lender hesitations: Be prepared to explain any irregularities in your income or fluctuations in your business.
• Seek specialist lenders: Some lenders specialise in or are more sympathetic to self-employed borrowers and may offer more flexibility.
• Use a mortgage broker: A broker experienced in self-employed mortgages can be invaluable. They can guide you to the right lenders, help structure your application to highlight your financial strengths, and negotiate terms on your behalf.

Securing a mortgage as a self-employed individual may have its challenges, but with the right preparation and guidance, it's entirely achievable. Whether you're a first-time buyer or looking to remortgage, Chase de Vere's experienced mortgage team can help you find the best deal to suit your unique needs.

As IPSE's partner for mortgages and independent financial advice, Chase de Vere has extensive experience working with self-employed individuals. Our team understands the complexities of your financial situation and will guide you through the mortgage process with tailored advice.

Complimentary home buyers' protection for IPSE members

IPSE members get complimentary home buyers' protection worth up to £1,050 when arranging a mortgage through Chase de Vere. This covers costs like survey, legal, and mortgage fees if the sale falls through due to unforeseen issues.

Speak to Chase de Vere mortgage adviser

We offer an initial consultation, via video call or phone, with one of our mortgage advisers at no charge. 

Important information

• Your home may be repossessed if you do not keep up repayments on your mortgage.
• The information contained within this article is for guidance only and does not constitute advice which should be sought before taking any action or inaction.
• Content correct at time of writing.