Self Employed Mortgage

Providing you can prove your income and that you can afford the repayments, you can get a mortgage.

If you’re looking to get on the property ladder, don’t be put off by the commonly held belief that getting a mortgage when you’re self-employed is almost impossible. In fact, don’t believe a word of it – we’re here to show you that’s simply not true.

The truth is that being self-employed does not make mortgage lenders any less likely to approve your application than if you were employed – you just have to be a little bit more organised in your approach to managing your finances and provide some additional proofs of income and affordability. Overall, the mortgage application process is neither harder nor more difficult than if you were employed, especially if you have a knowledgeable mortgage adviser doing the work for you.

Basically, it’s just a myth that it’s hard to get a self-employed mortgage. We’re here to help you through the process.

Whether you’re employed or self-employed makes no difference to the range of mortgage products that you’re potentially able to access in the UK. Lenders just need to know about your ability to repay; and while having a contracted salary from an employer is a great way to demonstrate this, there are plenty of other ways to prove that you’re good for the money if you are self-employed and/or running your own small business.

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Acceptable occupations for a self-employed mortgage

Generally, lenders are pretty flexible when it comes to the sector in which you work. As a result, almost all occupations would be acceptable providing that the business is viable, trading as a going concern and income is sustainable.

This may include

  • Taxi drivers
  • Builders
  • Plumbers
  • Painter
  • Decorators
  • Electricians Any other tradesmen
  • Musicians
  • Landlords
  • Those in the financial sector
  • Retailers
  • Those with online businesses
  • Professionals
  • Investors

Basically, in terms of sector, anything goes!

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Frequently Asked Questions

You will be classed as self-employed if you own around about 25 percent of a business, or more. So, if you own your own small business as a sole trader, or even if in partnership with one or two others, you’re basically going to be classed as self-employed. It’s also worth noting that, for the purposes of a mortgage application, those who are in a partnership are treated the same as those who are sole traders.

Organisation is key and, if you’re considering buying a house in the near future, it’s never too early to start looking for a better way of organising your accounts and pre-empting the questions that lenders might ask about your income by gathering all your bank, accountants and HMRC statements together for the lender to see.

Typically, self-employed applicants can borrow pretty much the same as employed applicants (depending on credit score), which is usually maxed out a 5x income. In certain circumstances, those earning a higher wage are able to ‘stretch’ this to a higher level if they can prove affordability.

Any mortgage lender that will accept 1 years accounts may require a different form of evidence, but nearly always require you to prove the income via a qualified accountant reference, finalised accounts, or a self assessment tax return (SA302). You would still be subject to the same income multiplier rules as any other applicant (generally a maximum of 5x income).

This depends on whether you trade as a sole trader or a limited company: 

  • If you are a sole trader a mortgage will be calculated on your annual net profit.
  • If you are a limited company this will be your director’s salary (remuneration) plus either your operating profit before or after tax, or your dividends.

Some lenders will cap self-employed lending to 4.5 times your annual income, but there are lenders who will go up to 5.5 times if you are a high earner.

There may be some discretion around the deposit that’s required, and this may be partially based on your credit rating. Basically, each lender will have different criteria: once we know what deposit you have available, we’ll match you to the most appropriate lender for your circumstances.

The only difference between a mortgage for a self-employed person is the proof of income you are required to provide. If you are a sole trader, you will need your personal tax calculations which will show your profit from self-employment, these are sometimes referred to as your SA302’s.

 If you are a limited company director, you will need your limited company accounts which will show your operating profit before and after taxation along with your directors remuneration and your personal tax calculations (SA302’s) which will show your income from employment and your dividends.

 These documents are generally required to be no more than 18 months old and you will need 1 or 2 years of either of these documents.

You have to prove how much you earn when you apply for a mortgage, because lenders will want to make sure you can afford the monthly payments.
Proving your income is sometimes more difficult if you’re self-employed, but you should be able to do this if you can get the right paperwork together. As noted above, this primarily means gathering bank statements, your accountants’ statements and your HMRC statements – together with all the requisite proofs of ID of course.

Mortgage lenders are required by law to be confident that anyone they approve for a mortgage has the ability to repay. It’s up to you, the borrower, to prove that you’re likely to be able to keep up with repayments and – for better or worse – this can be a little bit easier to do if you’re employed as you’ll have a contract and payslips to prove your income.

However, self-employed borrowers can still prove their income – follow the rest of this FAQ guide to find out how.

It shouldn’t be, if you have at least one year’s worth of accounts or tax calculations available.  A specialist broker should make it straightforward for you to obtain a mortgage because they will deal with selecting the appropriate lender for you.

If you’re self-employed, keeping your finances neat and tidy and working out profit accurately is a little bit more complicated. With various taxes, expenses, bills, invoices and all of your monthly living and running costs on top of all that, it can be difficult to prove to a lender that the money you earn would be enough to cover mortgage repayments.

Obviously keeping accurate accounts, having bank statements to back up the accounts, plus appointing an accountant to handle your books and file your HMRC returns, would be the best way to prove income and affordability – whilst also being a great way to keep your personal and business finances in order, of course.

The amount you can borrow and the way it’s calculated depends on the lender, which is why it is important to talk to our advisers so we can try to get you the best possible deal.

Some lenders set the amount you can borrow based on your previous few years’ income, whereas others calculate it based on only your previous year of trading – we’ll look at what works out best for you and match you to the right lender accordingly.

They will also calculate your mortgage offer differently, depending on your legal status:

  • For sole traders and partnerships, lenders take net profits as income.
  • For limited companies, the lenders look at salary and dividends. In some cases, they look at salary and net profit of the company.

When lenders decide how much you can borrow, they often find it difficult to work out your regular income. For example, you might have quiet months or years, or periods when your business does better. This can affect the amount of money that a lender would offer you.

Firstly, contact us and let our advisers guide you through the process – with the right support and with you providing the required supporting information, we should be able to make the process nice and simple for you.

Generally this is the same as an employed person, although some lenders will cap self-employed lending to 4.5 times your annual income, there are lenders who will go up to 5.5 times if you are a high earner. How much you can borrow will be determined by your annual income as a sole trader or limited company. Depending on your situation this can be taken from only 1 years documentation, an average of 2 years or your latest years figures.

Ideally you would have at least 1 full years accounting information, there are some exceptions to this if you are a contractor or CIS worker.

Self-certification mortgages, or self-cert mortgages, enabled people to borrow money to buy a home without having to prove their income. Instead, applicants simply told the lender what they earned without the need for any proof to back it up – so we can all guess how widely that was abused, can’t we?!

These types of mortgages were originally aimed at a minority of self-employed borrowers who generally found it difficult to prove their income, but they ended up being sold much more widely. Dishonest borrowers would exaggerate their income in order to secure a bigger mortgage with minimal checks and as a result, self-cert mortgages quickly earned the nickname “liar loans”.

Unsurprisingly, the Financial Conduct Authority (FCA) outlawed self-certification mortgages in the UK in 2011, meaning now that all self-employed applicants had to prove their income and their ability to make repayments on the mortgage.

Potentially yes, there is no reason why being self-employed should limit the mortgage deals available to you. Most lenders do not discriminate on this basis, they’re simply looking for proof of income and affordability.

Look at all your options, and make sure you have the evidence you need to prove that you are able to repay the loan. You’re more likely to get a mortgage if you have:

  • A healthy deposit
  • A good credit rating
  • Enough income to cover your mortgage repayments
  • Improved your chances of getting accepted
  • Requested help looking at and applying for the right mortgage from an expert broker
  • Always keep your business paperwork, accounts and electronic records up to date
  • Used an accountant if you need help organising your accounts and taxes
  • Completed a self-assessment SA302 form to prove your income

Self employed mortgages are typically more difficult to obtain because the lender may have difficulty establishing how much you earn, and therefore the risk of you not being able to pay back what you borrow. Generally, if you have been self employed for longer than 3 years, you would be considered by most lenders in the same way as an employed applicant. If you’ve only been trading for 1 or 2 years then it is often much more difficult and lenders may deem you to be more of a risk however, as we’ve already discussed that is becoming less the case these days at lenders become more flexible.

Gone are the days of pure self-cert mortgages, where self-employed borrowers could tell a bank what they were earning without proof, and borrow pretty much what they wanted. Since the recession, lenders have been forced to tighten their approach and request proof in almost all regulated borrowing applications. This has impacted the self-employed market massively, and many business owners and tradesmen now find themselves struggling to find finance. With the number of start-up businesses continuing to rise, we are finding more and more customers that have recently gone self-employed looking for finance and finding it difficult unless they speak to a specialist like us.

There are a range of mortgage lenders accepting 1 years accounts up to 3 years accounts (usually the maximum required). It really depends on your personal circumstances as to which one is best, as they all have different criteria in other considerations aside from your.

Some of these companies are high street names you may have heard of, others (especially for more specialist applications) you may not have – in any case they are all mainstream registered and reputable organisations that are fully regulated by the Financial Conduct Authority (FCA).

The advantage of dealing with a company like us is we’ll do all the hard work searching for appropriate lenders for you, and present you with a simple shortlist for your consideration.

No, you can still obtain a mortgage if you submit your own personal tax return, there are however a few exceptions. If you are a limited company and looking to use your operating profit or you are a sole trader looking to use an accounting period other than the April to April tax year then you will need a suitably qualified accountant.