However, in reality, a self-employed person now has access to the same mortgages as an employed person. Some lenders may market themselves as specialising in mortgages for the self-employed but most will routinely grant the required funds to self-employed people, so in most cases there’s no need to use a specialist.
A lender will want evidence to verify the income a self-employed person declares. Each financier will have different criteria but typically, they will ask a self-employed person for:
- an Accountant’s Certificate, or
- the last two or three years’ accounts, or
- the last two or three HMRC forms SA302 and corresponding Tax Year Overviews
For sole traders, the banks will look at what profits the business makes and in the case of partners, their share of the profits.
For directors of limited companies, the banks will either be looking at a combination of the salary they take from the company, the company’s profits and the dividends they receive.
To give sole traders, partners and directors the best possible chance of successfully applying for a mortgage, we summarise the actions they need to take in preparation:
A healthy business
A lender will normally want to see a profitable business for the period for which they have requested evidence. They will be looking for a business that has steady or growing profits; not profits that are dramatically fluctuating from year-to-year or falling.
Banks may also look at the balance sheet of the business. Where assets exceed liabilities, this will indicate a stronger, and more healthy position.
If you don’t have the number of years of accounts or tax returns behind you that you need, all is not lost. Some lenders may be prepared to look at contracts and jobs you have planned for the future.
Tax bill versus mortgage
Unless you’re trying to sell your business, figures will normally be presented in a way to minimise tax liabilities. However, just be wary the impact this strategy can have if you are planning to apply for a mortgage.
Keep your records in order
Make sure your paperwork is up to date. Providing professional accounts will ensure the bank know that you are organised and professional.
Be up to date
Banks would prefer not to be presented with draft figures, so if you can, get everything finalised and filed with HMRC before applying for finance. You will also need to make sure that the accounts or tax returns are as up to date as possible; and certainly, the accounts should be no older than 18 months.
Remember a bank is likely to look at your personal circumstances and that of the business, so make sure you’re up to date with payments for any other credit facilities you have.
Maximise your credit rating and save for a deposit.
Whether you’re employed or self-employed, a high credit history is always important and the bigger the deposit you have, the better your chances of being successful, the broader the range of mortgages available to you and potentially the lower the borrowing costs.
If you already have or have had a mortgage in the past and you had a good track record, and/or have some equity behind you, the banks are likely to be more favourable.
A mortgage broker
Whatever your employment status, a mortgage broker or independent financial adviser can be very useful. They can walk you through the process, help with the application and find mortgages that you may not have access to yourself. They may also have some experience of which lenders might be more flexible if business owners don’t have the required accounts or tax returns for example.
How to get the SA302
An SA302 is essentially your tax computation produced by HMRC, and it will show your taxable income and how your tax liability has been calculated.
HMRC used to post a SA302 to you on request, but they have recently withdrawn this service.
Instead, taxpayers will need to login to their personal tax account and print the SA302 and the Tax Overview themselves. If you’ve lost your log-in details, it can take seven days to replace them. If you’re new to HMRC’s online services, it can take up to 10 days to activate the service.
HMRC is also increasingly using 2-Step Verification. This is an additional security feature which helps to prevent unauthorised access of someone’s personal tax account, even if they have their User ID and password. To log-in to your personal tax account, you will need your log-in details and HMRC will send a one-off access code via text message to your nominated mobile phone number that you will need to enter.
The benefits of using an accountant
Some lenders insist that accounts are prepared by an accountant and sometimes stipulate what qualifications they must hold, so bear that in mind if you’re looking to appoint someone to help you.
If you can’t access your personal tax account or you need the figures urgently, an accountant may be able to help you in several ways:
- If an accountant has compliant software, they may be able to produce the SA302 for you, or
- They can prepare the accounts or tax returns that the bank is asking for, or
- They can complete the Accountant’s Certificate
How TaxAssist can help you
The provision of financial advice within the mortgage industry is regulated, but we can recommend mortgage brokers and independent financial advisers. We can support you with all your tax and accountancy needs, including providing the lenders with the information they need.
Date published 20 Sep 2017 | Last updated 2 Nov 2021This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.