Self-employed individuals have until 31 January to submit their self-assessment tax returns to HMRC – but you may need to file much earlier if you wish to obtain a mortgage.
When are applying for a mortgage as a self-employed person, it can appear to be you will find endless hurdles to leap through, and something of the biggest is proving your earnings.
Which? explains the best way to make the process of obtaining a mortgage easier and increase your chances of having your application accepted.
Tax returns as well as your mortgage
When a lender receives a mortgage application from a self-employed person, they'll need to see evidence that you’ll be able to repay the loan. Those who are utilized by companies can point to employment contracts and payslips – but it’s harder to create a case if you’re self-employed.
One piece of evidence you’ll require is proof of your earnings from HMRC – an application known as SA302. Most lenders will need self-employed applicants to have the most recent three SA302 forms, including one in the year that finished in April 2022.
Failing to supply these may derail the application or even allow you to be turned down.
In order to receive your latest SA302 from HMRC, you need to have filed your self-assessment taxes.
The tax year runs from 6 April to 5 April, and the last chance to file your tax return is 31 January the year after. But waiting until this date might be past too far for the mortgage application.
When are you able to file your taxes?
While it’s possible to file your taxes whenever after 6 April – so that your first chance to apply for 2022-18 was 6 April 2022 – most people wait until later around and lots of let it rest until the deadline is looming.
If you’re considering trying to get a home loan, however, it’s worth filing sooner rather than later so you've the documents to hand.
There will also be some hard tax return deadlines you need to meet. If you want to submit a paper application, you need to submit by 31 October. And if you submit after 31 January the following year, you may face a fine.
Once you’ve submitted your returns, you ought to be able to download your SA302 from the online portal. Alternatively, you are able to ask HMRC to mail the forms, though you’ll need to allow a minimum of fourteen days for your.
Getting a mortgage when self-employed
As a guide, you’ll usually need to provide a minimum of two years of accounts signed off by a cpa to aid your mortgage application.
Mortgage providers will normally base their decision on whether and how much to lend to yourself on an average of your profits for the period – and it’s helpful if you're able to show consistent or steadily increasing takings. If your income has varied dramatically from year to year, you might be asked for further evidence of future earnings, such as new client contracts.
You may also find it simpler to obtain a mortgage if you're able to provide a decent deposit. Most lenders expects to see a minimum of 1o% to 20% from the self-employed applicant.
The way you’re assessed is determined by what type of business you’re in. If you’re a sole trader, lenders will appear at the SA302 and personal financial circumstances.
In a partnership, the lending company will consider your share of the profits. And when you've got a limited company, the lending company will consider the salary you pay yourself and your dividend payments, although not any retained profits.
Our video explains how to apply for a mortgage when self-employed.
Seek professional advice
When you’re working for yourself, applying for a home loan could be less straightforward than applying being an employee.
A mortgage adviser will help you navigate the process, explain lenders most likely to lend to you, and help you make an application for the best deal.