A self-employed person is someone who runs their own business and works for themselves without an employer. Directors of small limited companies, although technically employed on a PAYE basis, will generally be classed as self employed when it comes to applying for a mortgage or remortgage. If you are self-employed, work on a contract basis, or have an income that is irregular or comes from multiple sources, it will generally be harder for you to get a mortgage than it is for someone who is an employee and can easily prove their income.
With over three million self-employed individuals in
UK, attitude of many mortgage lenders towards self-employed population is a problem that can affect a large number of people, even though many self-employed people often earn more than a lot of salaried workers.
The problem stems from fact that majority of mainstream mortgage lenders require proof of income when assessing a mortgage or remortgage application. Employed people can use their payslips and P60 as proof of salary, but there is no such straightforward equivalent if you are self-employed.
In place of payslips, self-employed workers may be asked to provide audited accounts that show their income over last three years. However, in many cases, these accounts will not give an accurate reflection of how much money a self-employed person is making. This is because if accountant who prepared accounts is doing his job properly, he will have offset as many allowable expenses as possible against tax. This has effect of reducing self-employed person's net profit, upon which lender will base size of mortgage or remortgage they are prepared to offer.
