Mortgage planning can feel a little different when you are self-employed. Unlike an employee with regular payslips, your income may change from year to year, and lenders may need a clearer picture of how your business and finances are performing.
That does not mean getting a mortgage has to be complicated. Preparing your finances and paperwork early can make the process more straightforward and give you a better understanding of what you may be able to borrow.
Keep Your Financial Records Organised
Good records can make a big difference when you apply for a mortgage. Depending on your circumstances and the lender, you may need to provide information about your income, tax returns and business finances.
HMRC confirms that a tax calculation, commonly known as an SA302, can be used as evidence of earnings when applying for a mortgage if you are self-employed. You can also obtain a tax year overview through your HMRC account. Find out more about SA302 tax calculations on GOV.UK.
Keeping these documents readily available can save time when you are ready to apply.
Understand How Your Income May Be Assessed
One of the things that can make mortgage planning different for self-employed applicants is how income is assessed. The approach can vary depending on your business structure and the lender.
For example, a sole trader’s income may be considered differently from that of a company director who receives a combination of salary and dividends. Some lenders may also look at income over more than one year.
The FCA’s mortgage guidance recognises that self-employed applicants may provide accounts or tax returns as evidence of income. (FCA guidance on mortgage rules)
Don’t Wait Until You Need the Mortgage
If you know that you may want to buy a home in the next year or two, it can be useful to start preparing early.
This gives you time to get your accounts up to date, organise your tax documents and look at your existing commitments. It can also help you understand how changes in your income or business expenses might affect your borrowing position.
Early preparation is particularly useful if your income has recently changed or your business is still growing.
Be Careful With Business Expenses
Claiming legitimate business expenses can reduce your taxable profit, but your reported income can also be relevant when a lender assesses affordability.
This is one reason why it is important to understand how your chosen lender assesses self-employed income before making major financial decisions.
Rather than changing how you run your business simply to improve a mortgage application, discuss your circumstances with an appropriately qualified mortgage adviser who can explain the options available.
Think About Your Deposit and Monthly Budget
A strong deposit can be helpful, but it is not the only thing to consider. You also need to make sure the expected mortgage payments fit comfortably within your household budget.
Remember to allow for business fluctuations and unexpected personal expenses. A mortgage should remain manageable even if your income is not identical every month.
Get Your Mortgage Plan in Place
Good mortgage planning is really about being prepared. Having your financial records organised, understanding how your income may be assessed and knowing what you can comfortably afford can make the mortgage journey much less stressful.
If you are self-employed and considering your next move, explore our mortgage services to understand the options available and get guidance based on your circumstances.
The right preparation will not guarantee a mortgage application is accepted, but it can help you approach the process with greater clarity and confidence.
Disclaimer
The information in this article is for general guidance only and does not constitute financial or mortgage advice. Mortgage products, rates, fees and eligibility criteria vary between providers and depend on individual circumstances. We recommend speaking with a qualified adviser at Credas Financial before making any mortgage or financial decisions.