A New Window Opens for Self-Employed
Written on 9 March 2025 by
What Self-Employed Individuals Need to Know About Tax Returns and Mortgages
For self-employed individuals, understanding how your tax returns impact your financial future is crucial, especially if you’re planning to apply for a mortgage. Lenders typically require proof of income through tax returns or financial statements, and having your records in order can make a significant difference in securing a mortgage.
Whether you’re considering buying your first home or moving to a new property, making sure your tax records are accurate, complete, and up-to-date will help you navigate the mortgage application process smoothly. This article provides some key insights into how you can better prepare for securing a mortgage as a self-employed individual.
The Growing Trend of Self-Employed Mortgage Applications
More self-employed people are now applying for mortgages, with many seeing property ownership as a long-term financial goal. However, securing a mortgage can still present challenges for the self-employed, particularly as income can be more variable than for salaried workers.
Lenders typically require two to three years of tax returns to assess your income and determine your financial stability. This means that having accurate and reliable financial documentation is essential. The number of self-employed mortgage applications has risen significantly in recent years, reflecting a broader trend of self-employed individuals seeking to invest in property despite the potential hurdles involved.
How to Navigate the Mortgage Application Process as a Self-Employed Worker
For self-employed individuals, there are a few additional factors to consider when applying for a mortgage. Here’s how you can improve your chances of approval:
- Ensure your financial documents are in order - lenders will generally ask for at least two years of self-employed income documentation. This could include your tax returns or accounts prepared by a certified accountant. Having all of this prepared well in advance can speed up the mortgage process
- Maintain accurate tax returns - your tax returns need to accurately reflect your income. Any discrepancies or inaccuracies in your filings can raise red flags with lenders, potentially delaying or even rejecting your mortgage application
- Work on your credit score - just like any mortgage applicant, lenders will also assess your credit history. If you know your credit score isn’t where you’d like it to be, take steps to improve it. Pay off outstanding debts and ensure you make payments on time
- Save for a larger deposit - if you can afford to save for a larger deposit, it’s worth doing so. Offering a larger deposit reduces the lender’s risk and can often result in better mortgage terms and rates.
- Seek professional mortgage advice - if you're unsure about the application process, working with a mortgage broker who specialises in self-employed cases can be invaluable. They can guide you through the complexities and help you find the best deal
How to Strengthen Your Mortgage Application After Filing Your Tax Return
Once you’ve filed your tax return, there are several steps you can take to further improve your chances of securing a mortgage:
- Consult your accountant for advice - your accountant can be a valuable asset when applying for a mortgage. They know your financial history well and can help you optimise your records to ensure they reflect your financial position in the best light possible
- Diversify your income - lenders tend to favour applicants with multiple income sources, as it shows greater financial stability. If you have a side business or other sources of income, make sure to keep track of them and include this information in your mortgage application
- Keep track of your expenses - demonstrating consistent profitability is key when applying for a mortgage. Use accounting software to track both your income and expenses accurately – this can make a difference when submitting your financial documents
- Consider a larger deposit - if you can afford it, offering a larger deposit will increase your chances of securing a mortgage with better terms. A larger deposit shows you have more financial stability, and lenders may be more inclined to offer you favourable rates
- Be prepared for extra scrutiny - understand that self-employed mortgage applications may require more documentation than those of salaried workers. Be prepared to provide additional information or clarify any questions that may arise during the application process
By taking these steps, you can improve your chances of securing the best mortgage terms, regardless of the time of year.
Conclusion: Setting Yourself Up for Success as a Self-Employed Individual
Being self-employed doesn’t have to be an obstacle to homeownership. By understanding the impact of your tax returns on the mortgage process, preparing well in advance, and presenting a strong financial case, you can increase your chances of success. Be sure to keep your financial records in order, maintain an up-to-date and accurate tax return, and take the necessary steps to strengthen your application.
If you’re unsure about how to navigate the mortgage process, don’t hesitate to seek advice from a mortgage broker or financial advisor who can provide tailored guidance based on your specific financial situation.
Categories:Self-Employed Mortgage Advice, Nicholas Mendes
