Can you get a joint mortgage if one applicant is Self-Employed?
From the applicants’ point of view, mortgage applications are much the same, regardless of their employment type and they’ll have access to the vast majority of the same mortgage products as other applicants. Whilst Mortgage Lenders may need to do slightly more complex calculations when joint applicants have different types of income, it’s perfectly possible to get a joint mortgage when one applicant is Self-Employed and the other isn’t.
The only difference for each applicant will be the type of proof of income that you’ll need to provide, if you and your partner have different forms of income. PAYE employees won’t have to go so far to prove their income, as Self-Employed applicants, however they will both be assessed in terms of creditworthiness and affordability.
As PAYE income is still perceived by lenders to be more stable than Self-Employed income, having one applicant that is in traditional employment will strengthen the application, when compared with two Self-Employed applicants, even if the PAYE applicant earns less than their partner.
How much can you borrow if one applicant is Self-Employed?
When you buy a property, Mortgage Lenders will be looking to establish that between you, you can afford the repayments on your mortgage. Your loan is based on a multiple of your combined income, usually between three and five times the total, depending on other factors, such as your credit score.
With the PAYE applicant, their basic salary, as per their payslip is used in the calculation. For the Self-Employed applicant, the lender will use an average of their income over the past two to three years to mitigate some of the risk of fluctuating pay in this employment type.
It can strengthen your application to have the PAYE applicant as the lead mortgage applicant, unless they have particularly bad credit.
What documents do you need if one applicant is Self-Employed?
Lenders will only usually need an employed applicant to provide three months proof of income, so payslips and bank statements are adequate for this purpose. The Self-Employed applicant will need to prove that they have been earning a stable income for at least two to three years.
The way that they prove their income will depend on the type of Self-Employed income they earn, as per the below list:
Sole trader, Freelancer or Contractor
If you’re a Sole Trader or a Freelancer you’ll need to provide your SA302 tax returns for the duration requested by the lender.
With Contractors, it depends how you are paid, some lenders are willing to work with an annualised version of your day rate, although you may also be asked to provide evidence of ongoing income, such as a written contract. If you are not on a day rate, you will also provide your SA302s.
As a Limited Company Director, your personal salary and dividends payments will be considered in the calculation of your average income. In order to prove this income you’ll need to provide two to three years of certified accounts, SA302 forms, a HMRC tax overview for the same period and in some cases, business banking statements are also requested.
There are a few specialist lenders who will take into account your retained net business profits, although this is fairly rare.
If you’re a partner who owns a percentage of a limited company, as long as that ownership is at least 25%, lenders will consider your share of the net business profits. To prove this income, you will likely need to provide the same documents as a Limited Company Director.
Does a mortgage have to be in joint names?
If you’re buying a house with someone else, they do not have to be named on the mortgage in order to be named on the deeds of the property. This means that if one applicant has poor credit, you can apply in a single name, although you should consider the difference in the loan amount, if it’s based on a single income.
How can Purely Financial help?
Speaking to Mortgage Brokers like ourselves, here at Purely Financial, can ensure that you are making the most of the mortgage products and lenders available to you. We know the intricacies of each set of lender criteria and understand what will make a difference to your application.
This allows us to prepare you for your application so that you have the best chance of securing a mortgage, for example, by helping you to decide on the lead applicant when applying for a joint mortgage.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE