Self-Employed Mortgages with Low Deposits

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What is a Self-Employed Mortgage?

Whilst there is no dedicated mortgage product for self-employed applicants, but the way in which your application is assessed by the mortgage lender differs from employed applicants. The majority of mortgage types available to the employed are also available to the self-employed.

How will your Self-Employed Application be assessed?

Whilst your application is still assessed by affordability, the amount of evidence required to prove affordability is greater than for employed applicants. You will ordinarily need to supply two years of certified accounts and fulfill a minimum trading period of around three years.

Your business type will determine how your evidence is used to calculate the loan, as follows:

Sole Traders

The lender will calculate your loan using your total net income using your SA302 form from relevant years.

Partnership

The size of your share in the partnership needs to be at least a 25%. The loan will be calculated using your share of the net business profits.

Ltd company

If you operate as a limited company, only personal income is usually considered unless you’re a director, in which case some lenders may consider net business profits alongside your income

How much can you borrow?

This will depend on your affordability, as per the incomes defined above, depending on your business type. Your credit score can also impact the loan amount, as well as the overall decision.

What if you don’t have a large deposit?

There is no defined deposit for self-employed applicants, although lenders are usually cautious and are likely to ask for a minimum of 10%. If a bigger deposit is not an option, there are a range of mortgage schemes you could consider:

Help to Buy

Ideal for low deposit applicants, this scheme provides applicants with a 20% interest-free equity loan to use in place of your deposit. This applies on new-build properties up to the value of £600k.You only need to provide a 5% deposit.

Right to Buy/Right to Acquire

This scheme allows some council or housing association tenants to buy their home at a significant discount of the market price. This only applies to tenants in England. The Right to Acquire is sometimes an option for those who don’t qualify to buy their home, but discounts are smaller.

Shared Ownership

As you only purchase a percentage of your home, the deposit required will be much lower, as will the mortgage repayments, particularly where you opt to buy just 25% of the property. You do, however, have to pay rent on the remaining percentage of the property.

People with Disabilities

HOLD (Home Ownership for People with Long-Term Disabilities) help those with long-term disabilities to buy any shared ownership home,where properties available through alternative schemes don’t meet your physical needs.

Starter Home Scheme

This is a new scheme providing 200,000 new build homes for first-time buyers under forty. They are offered at at least 20% below market value, with a maximum home value of £250k (£450k in London).

How do you improve your chances of being accepted by a lender?

Whilst offering a largest deposit would ordinarily help self-employed applicants secure a mortgage, where this is not possible, you could try the following:

Make a joint application

If you can apply for a mortgage with another applicant, particularly if they’re employed, this can strengthen the application.

Increase your Income/Credit History

It may be contrary to your business plan, paying yourself a higher percentage of business profits as dividends can be beneficial. Taking time to improve your credit history before you apply will also help.

Delay Major Business Changes

Restructures or a change of business type can be a red flag for lenders, who prefer stability. If possible, delay these changes until your application is accepted.

Use a Mortgage Scheme

The criteria on many of the schemes mentioned above is more flexible and they may be more attainable for self-employed people who are unsuccessful with a standard mortgage application.

How can a Mortgage Broker help you if you are Self-Employed but have a low deposit to put down?

Mortgage advice from a broker with specialist experience in Self-Employed mortgages will be particularly helpful during your application. They can help ensure you fulfill the acceptance criteria and guide you towards lenders who are more favourable towards Self-Employed applicants.

In addition to this, they can also help you to find the best mortgage deals on low deposit mortgages, given that they have access to exclusive deals and a whole-of-market view.

Self-Employed Mortgages with Low Deposits
Self-Employed Mortgages with Low Deposits

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Self-Employed Mortgages with Low Deposits

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