Remortgaging when you’re self-employed is not hugely different from a regular remortgage process. Most often, those who are self-employed may find both the initial mortgage and remortgage process slightly more time-consuming, as they are likely to be required to provide more documentation regarding their earnings.
The rule of thumb for most lenders is that three years of accounts are required to prove you are capable of covering the costs of the mortgage and have a steady and regular income. This, however, can vary depending on the lender, as some may accept only two or even one year’s worth of accounts based on your personal circumstances.
If you already have a designated accountant managing your accounts this process should be simple, as they can easily organise and prepare the required paperwork and make sure it’s correct. Otherwise, it may be optimal to hire an accountant who will be able to lead you through the process and help you organise your files accordingly.
What does self-employed mean in the eyes of the lender?
Someone who is self-employed can be described as ‘an individual working for oneself as a freelance or the owner of a business rather than for an employer.’ However, there are now more and more people who may have multiple sources of income which is where matters may get more complicated.
Lenders will typically define someone as ‘self-employed’’ if they have an ownership interest of 25% or more in a business. Anybody who is not in a typical form of employment is also likely to fall within this category. This can apply to those with hobbies that may bring additional income, such as artists who sell their artwork online, dropshippers, or online resellers.
Generally, anybody who makes more than a £1,000 a year through their side hussle is legally required to pay tax on that additional income, and should therefore be registered as self-employed.
Can you remortgage if you have only recently registered as self-employed?
Those who have only recently started their own business and registered as self-employed may have to jump some additional hurdles when remortgaging. Whether you have been self-employed for a couple of months, or have at least one year’s accounts and a completed tax return may be what defines your ability to remortgage.
Seeing that most lenders require three years' worth of accounts if you are only recently self-employed and do not have a steady history of income the lender will view you as a high-risk borrower. History of income from previous employers does not count, and you may struggle to remortgage if you are not able to provide adequate predictions of future earnings, such as signed contracts that clearly outline the value and term of your work.
Basically, if you have only been trading for a couple of months, your best bet if wanting to remortgage is to wait until you submit your first official tax return. That’s because, in the eyes of the lender there is no solid proof that you will be able to afford your mortgage, therefore decreasing your creditworthiness and chances of being able to remortgage.
It’s worth remembering that there are some specialist lenders out there who specialise in giving out loans to people in unique circumstances, such as those who are newly self-employed. You could also choose to remortgage with an existing lender as they will already have a history of you making regular mortgage repayments.
Is it harder to remortgage if you’re self-employed
The remortgage process can be somewhat more challenging for those who are self-employed, however, this should not discourage you. As much as you may be required to provide more documentation in regards to your income, the rest of the process is likely to remain the same.
The only exception is if you have a limited history of trading as a business, for example, if you have only been self-employed for a few months. Even then, you may find that you can still complete the remortgage process with a specialist lender if you meet their criteria.
How to remortgage when you’re self-employed
Except for the extra paperwork, the remortgage process for those that are self-employed is the same for everybody. You can start by looking around for a lender of your choice, contacting your current lender and asking for their best deal, or simply contacting a mortgage broker who will be able to guide you through the entire process stress-free.
These are the following steps that you can expect to go through during your remortgage process:
- To avoid being moved onto your lender’s standard variable rate, we advise that you start looking at deals up to 6 months before your current mortgage deal ends. This will allow you to secure a fixed rate deal ahead of time.
- You can contact your current lender in order to remortgage, which is commonly referred to as a product transfer. A product transfer is likely to include less paperwork, however, may not give you the best rates out there. It’s recommended that you look around at rates offered by other lenders - a mortgage broker can help you with this.
- If you decide on a new lender, you will be requested to submit all relevant paperwork - similarly to when you initially applied for a mortgage, such as proof of income, documentation proving your identity and your credit score. Your information will then be processed over the course of 4-8 weeks.
- Once your remortgage application has been completed, you will start making your mortgage repayments to the new lender.