Preparing for a self employed mortgage: How to boost your eligibility

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Applying for a mortgage, regardless of your situation, can be nerve-wracking and stress-inducing. It’s not as simple as submitting a standard loan application and getting an immediate answer.

Typically, you will need to jump through a few more hoops if you aren’t a part of the traditional 9-5 workplace and are your own boss. But these hoops aren’t always a barrier to success, and there are thousands of self-employed people across the country who have successfully made the move to being homeowners. And while this isn’t likely to be easy, in 2022, only around 65% of self-employed applications were deemed affordable; it isn’t entirely impossible.

If a mortgage application is on the cards for you, these tips can be helpful.

Check your credit score

There are many small things on your credit score that can impact your eligibility for a self-employed mortgage. Whether or not you’re on the electoral roll, if you have defaulted on any payments recently, you are past CCJs, taken out payday loans or had too much credit, for example.

Go through your credit score and look for anything lenders might deem a red flag. See how you can improve it if possible, explain any changes, or rectify any errors. Talking to the credit reporting agency can be a good shout if you need to get any errors corrected, as can the company that records the issues, too.

Income evidence

This is where things can come unstuck if you’re not careful. Lenders require copious amounts of payslips for employed persons to assess how much they can afford and how stable and viable their income is. If you’re self-employed, you likely won’t have this information. Instead, you collect as many years of evidence of income as possible, at least three years, more if you can. If you’ve not been trading long, lenders will require a minimum of one year’s income and possible previous payslips if you are employed, too, as this will support your application.

Be realistic about what you can afford

This is an important factor. It can be easy to get carried away and want to take on the most significant loan possible. But this isn’t always the best idea, especially if your income can fluctuate. There are various calculators available to help you work out what you can realistically afford to repay and what will be more manageable. Remember, owning your own home comes with other costs, such as instances, utilities, maintenance upkeep, etc. These should be factored into any affordability checks you run to help you avoid overstretching yourself.

Save a bigger deposit

While not as common for self-employed people as for those employed, 5% and 10% deposit mortgages are on the market for the self-employed sector. However, the standard in the UK is typically to put down around 20%. The more you put down, the less you have to borrow and the more affordable the mortgage repayments are. While it might take a little bit longer to save up more money, it can be worth just holding off if you can put down a bigger deposit, as this will help to make your application more attractive to lenders.