Since mortgage lending rules were revised following the Mortgage Market Review in 2014, it is now trickier for all of us to obtain a mortgage. However if you are self-employed, you may find yourself having to jump through even more hoops to secure funding for your new home.
Pre-2007, it was possible to obtain a self-certification mortgage where no proof of income was needed. These mortgages were designed for the self-employed who did not have monthly payslips; however these were abused by those desperate for a larger mortgage than their income would allow, leading them being dubbed ‘liar loans’. As a result self-certification mortgages are now banned in the UK. Everyone now applying for a mortgage, including those the self-employed, is required to provide proof of their income before a loan will be agreed.
If you are a sole trader and are in the process of applying for a mortgage, you should be aware of the SA302 tax calculation. This is a document which acts as evidence of earnings for those who complete self-assessment tax returns. The SA302 is a short summary of the income that has been reported to HMRC, and is therefore an easy way for a lender to verify that the income on a mortgage application is indeed accurate. Your mortgage company will typically ask for up to 3 years worth of these statements. The SA302 statement is now accepted by the vast majority of mainstream lenders as proof of income, and removes the need for you to supply complete tax returns to your mortgage provider.
In the past the SA302 calculation was notoriously difficult to get hold of, as HMRC only automatically issued them to those who submitted a paper tax return. This caused a problem for a huge number of people who chose to submit their returns online or used accountants who likewise used an online programme to submit their client’s tax returns. For those whose tax returns were submitted online, the SA302 needed to be requested over the phone, and sent by HMRC through the post which could take around two weeks. However this process is now automated and the calculation can now be requested online and be obtained instantly.
It is important to note that the online request can only be made by whoever submitted the online self assessment form; this could be yourself if you look after your own tax returns, otherwise you may have to ask your accountant to obtain this for you.
While the process for obtaining a mortgage may be more complex if you are self-employed, as long as your paperwork is up to date, and you have submitted your tax returns to HMRC on time, you still stand a good chance of securing the loan that you need.