Following the financial crisis, stricter rules on who could or could not get a mortgage were introduced. The Financial Conduct Authority (FCA) recognises that the rules make it particularly hard for the self-employed to get a mortgage.
Despite the difficulties, the FCA says that there are as many self-employed people borrowing money to buy a house as there were before the new rules came into force.
The new rules, known as the Mortgage Market Review, were introduced in 2014. Prior to this, the self-employed could self-certify, meaning that they could simply declare their income. Self-certification has been abolished and now the self-employed need to show proof of two to three years earning. Some lenders will ask to see full business accounts and self –assessment tax returns.
The earnings of the self-employed can go up and down from year to year which makes it difficult for lenders to assess whether the self-employed can afford the mortgage repayments.
In theory, this situation should have prevented many self-employed people successfully applying for a mortgage, but the FCA figures tell the opposite story. About 90,000 self-employed people took out mortgages in 2011. Last year, under the new rules, the number rose to 100,000.
If you are self-employed and want a mortgage, then it’s advisable to hire an accountant to certify your business accounts. HMRC can provide proof of your declared income, such as an SA302 form, which is one of the main resources lenders use to make a decision on the applications of self-employed people.