Self-Employed Mortgage First Time Buyer

How does getting a mortgage as a self-employed First Time Buyer work? Is it difficult?

It’s more difficult to get a mortgage as a self-employed person, in comparison to other employment types like PAYE. If you then add the First Time Buyer status to that equation, it’s naturally going to create some apprehension.

I wouldn’t say it’s more difficult, necessarily, but if it’s not approached correctly, it could certainly seem that way. There’s a bit more pressure on the whole situation in general.

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

One year. Options for mortgages for the self-employed start from the point you have one set of accounts. Anyone that says you need two, or even three years worth of trading are simply misinformed.

Whether you can get the mortgage you want with the first set of accounts is a different matter. That’s going to depend on a lot of factors: the size of your deposit, your credit status, and how good your first year within that self-employed role has been. But being a First Time Buyer doesn’t change the self-employment requirements at all.

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

How much a lender is actually going to loan you is calculated using a consistent blueprint. They take your annual income figure and apply a multiple to it, which will likely be somewhere between four and six times.

Once you’ve got that figure, you’re going to add in your committed expenditure, like loans, credit cards and childcare costs. That’s going to chip away at that number until you’re left with your maximum loan.

Luckily, lenders have come to the market with schemes that enhance affordability for First Time Buyers. There is a possibility that the multiple applied to your income could actually be a little higher as a First Time Buyer.

Of course there are other criteria you’re going to need to hit, which will depend on what lender you go to and what specific scheme that you’re approaching.

Just make sure that you’re speaking to someone who’s got access to all the lenders – so you can explore all those schemes rather than just one, or even none of them.

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

The question really is how you determine what your annual income figure is. From a self-employed perspective, you’re not going to have an annual salary, so what figure do you put into the calculator if your income is fluctuating from year to year?

If we look at someone with one set of accounts, that’s a good place to start. You’ll only have one figure. You’ve submitted your accounts to HMRC once and that’s the figure a lender would use if you’re a sole trader and you’ve got profit from self-employment.

But if you’re a limited company director, you can use your salary and your dividends for that year, or you could even use your salary and your share of net profit for that year. So there are three different ways a self-employed person might arrive at that income figure. But once we have it, that’s what we punch into the calculator.

If you’ve been trading for two years, each lender is going to approach the scenario differently. You’ll now have two figures, from year one and year two.

Some lenders are going to average them out, if they’re on an upward trend, and some take the latest year in isolation – as long as there’s a strong argument that the upward trend is likely to continue. All of them will just take the latest year if it’s on a downward trend.

To add to that, if you’ve been trading for three or more years on an upward trend, some lenders will take an average of three, and some of two. Again, if it’s on a downward trend, they’re going to take the latest year.

It’s really complex to decide which lender to go to based on your specific situation. Every lender will give you a completely different figure, depending on your circumstances. So it’s good to have access to all of those to make sure you’re getting the best option for you.

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

If you’re a sole trader, you’re going to need to provide SA302s with corresponding tax year overview documents, and your latest three months’ bank statements, to show the income credits going into that account.

If you’re a limited company director, you need to provide those as well as the company accounts and company bank statements. If you’ve been trading for one year, you’re obviously going to need one set of those. If you’ve been trading for two or more years, you need at least two sets as income evidence to the underwriter on your application.

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

My advice to anyone with bad credit is the same, regardless of whether you’re self-employed. Firstly, and most importantly, don’t bury your head in the sand. The best place to start is downloading a multi-agency credit file. Don’t just go to Experian or Equifax, as the information differs from agency to agency.

Use someone like CheckMyFile, that shows you all the details that you need to know. Then, the timeframes you’re working with will inform your plan of action. If you’re buying in a year, you can generally make some big improvements to your credit in that time.

But if you’re buying in the very near future and your credit is poor, you might not have enough time to make improvements. If that’s the case, you’re likely to need a specialist lender that’s going to charge you higher fees and interest rates. It really depends on what stage you’re at.

But start by seeing exactly what the damage is and plan ahead for the best outcome, depending on your time frames.

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

There are three things that to focus on if you are self-employed and if you’re looking to get on the property ladder.

The biggest one is deposit. The bigger the deposit, the easier your situation is going to be. Perhaps it can be increased – maybe with a gift, if you’re lucky enough to have a family member who’s willing to assist you.

Getting your credit in check is important, as we just touched on. Pay your commitments on time and aim to have good conduct with your finances, by keeping up with credit agreements and not going over your overdraft. Those things really go in your favour when it comes to applying for the mortgage.

Then, specifically for the self-employed, is record keeping. You need to submit your accounts accurately to HMRC, and declaring all your income will give you the best chance of maximising your affordability. Get hold of those documents from your accountant or from the HMRC portal you’re using.

How do I apply for a mortgage as someone who is self-employed and a First Time Buyer?

I can relate to that, because I became a broker 10 years ago, and at the time, I was also a First Time Buyer.

As a self-employed First Time Buyer – and a mortgage broker – I still managed to get my own mortgage declined twice before I was finally successful. So if someone qualified and experienced can struggle, that shows it’s tough.

Since then, I’ve made a point of specialising in this area because of how difficult I found it myself. As a company we have a niche with the self-employed market, and now we struggle much less in placing these mortgages. But we still come across people in a similar position, who have tried to secure a mortgage with other brokers. If they haven’t got that knowledge, it can be really difficult.

So it’s crucial to speak to someone who knows self-employed mortgages inside out. It’s going to make your life a lot easier. Make sure you’re talking to someone who’s got the experience in that specific area. Don’t make your life any more difficult than it needs to be.