Getting self-employed mortgages

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self-employed mortgage

Self-employed mortgages are a key part of the financial landscape, offering opportunities for those who choose the entrepreneurial path to become homeowners. These mortgages are specially tailored to accommodate the unique financial circumstances of the self-employed, who often have variable income and complex tax situations.

Understanding the specifics of self-employed mortgages, including the application process, the required documentation, and how lenders assess your eligibility, can make the journey to homeownership smoother and more predictable. While it may seem daunting at first, securing a mortgage when you’re self-employed is absolutely achievable, and thousands of independent professionals, freelancers, contractors, and business owners in the UK do so every year.

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What are self-employed mortgages?

Self-employed mortgages are not a different type of mortgage but rather refer to the process by which individuals who are self-employed — including freelancers, contractors, sole traders, or business owners — apply and are approved for a mortgage.

Being self-employed can sometimes make the mortgage application process more complex, primarily because lenders may view income from self-employment as less stable than a regular salary. Typically, mortgage lenders look for consistent income over a period of time and the ability to sustain future income, so self-employed applicants need to provide additional proof of their earnings.

Is it hard to get a self-employed mortgage?

Getting a mortgage when you’re self-employed can sometimes be more challenging than if you’re a salaried employee, but it is by no means impossible. The challenge lies primarily in the need to prove stable and sufficient income, as mortgage lenders typically look for evidence of consistent income to assure that you’ll be able to keep up with repayments over time.

Here are some factors that can affect your ability to secure a self-employed mortgage:

Income fluctuations: If your income varies from month to month or year to year, this might be seen as risky by some lenders. However, others may look at the average income over a number of years.


Proof of income: As a self-employed individual, you’ll generally need to provide more documentation than a traditionally employed individual. This usually includes two to three years of tax returns or accounts prepared by an accountant.


Business age: If your business is relatively new and you don’t have multiple years of accounts, it can be more difficult to get a mortgage. However, some lenders may still consider you if you have one year of accounts or a strong track record in a similar industry.


Credit score: As with any mortgage application, having a good credit score will improve your chances of being approved.


Deposit: The bigger the deposit you can put down, the lower the risk for the lender, which could make it easier to get a mortgage.


Debt-to-income ratio: Lenders will consider your debt-to-income ratio, i.e., how much of your income is going towards servicing debts. A lower ratio is generally more favourable.


How much can you borrow as a self-employed?

The amount you can borrow as a self-employed individual when applying for a mortgage will vary depending on a number of factors. In the UK, lenders usually offer between 4-5 times your annual income, but it can depend on the specific lender’s criteria.

Here are some of the key factors that lenders will consider when deciding how much they’re willing to lend:

1. As a self-employed person, your income may fluctuate more than that of a salaried employee. Lenders will typically look at your income over the past two to three years to get an average annual income. If you are a sole trader or a partner, lenders typically look at your share of the profits. If you’re a director of a limited company, they typically look at your salary plus dividends.


2. A good credit score can help you borrow more because it shows lenders that you’re reliable at repaying debt.


3. The larger your deposit, the less you’ll need to borrow. Lenders typically offer better rates to borrowers with larger deposits as it reduces their risk.


4. Lenders will look at your regular outgoings and debts to assess your affordability. The fewer outgoings you have, the more you might be able to borrow.


5. The interest rates at the time of your application can also affect how much you can borrow. Lower rates can make the repayments on larger mortgages more affordable.


6. The length of the mortgage term can also impact how much you can borrow. Longer terms may allow lower monthly payments, enabling you to borrow more but keep in mind this would also increase the total amount of interest you pay.

How to get a self-employed mortgage

Getting a mortgage when you’re self-employed can be a bit more challenging compared to regular employees, but with careful preparation, it is certainly achievable. Here are some steps you can take to improve your chances:

Organise your financial records: Ensure your accounts are up-to-date and well-documented. You’ll usually need at least two to three years’ worth of accounts or tax returns (SA302s) as evidence of your income. These should be prepared by a certified or chartered accountant.

Check your credit score: A good credit score is important for any mortgage application. Before applying, check your credit report, correct any errors, and take steps to improve your credit score if necessary. This might involve paying off debts, making sure you’re on the electoral roll, and ensuring all bills are paid on time.

Save for a sizable deposit: The larger the deposit, the lower the risk for the lender. This could not only increase your chances of approval but also secure you a better interest rate.

Minimise your outgoings: Before applying, try to minimise any outstanding debts, as lenders will look at your debt-to-income ratio when assessing your application. This means paying down credit cards and personal loans and avoiding taking on any new debts.

Show stability: Demonstrate stability in your income. If your earnings fluctuate wildly, this could make lenders nervous. If you can show consistent or increasing income over several years, this will work in your favour.

Use a mortgage broker: Mortgage brokers have experience with many different lenders and their criteria. They can help you understand your options and steer you towards lenders who are more likely to approve your application.

Be patient and prepared: The process for self-employed individuals can be more lengthy and complicated, so be prepared for this.

Remember, every lender has their own criteria, and some are more flexible than others. If your application is rejected by one lender, this doesn’t necessarily mean that you won’t be able to get a mortgage at all. You may just need to apply to a different lender or make some adjustments before reapplying.

What documentation will a lender need for a self-employed mortgage application?

When you’re self-employed ( an “external link” ), mortgage lenders will typically require more documentation to confirm your income and the stability of your earnings. The exact documents needed can vary between lenders, but here’s a general list of what you can expect to provide:

Proof of income: This is the most crucial piece of documentation. You’ll usually need to provide at least two to three years’ worth of accounts, tax overview and tax returns (SA302 forms). If you’re a director of a limited company, you might need to provide both company accounts and personal tax returns. These documents should ideally be prepared by a certified or chartered accountant.

Business accounts: Some lenders may want to see your business accounts, especially if you’re a business owner or a partner. They may look at the business’s profit and loss statement over the years.


Bank statements: Lenders may also ask for your personal and/or business bank statements to see your income and expenditure in more detail.


Proof of deposit: If you’re buying a property, lenders will need to see proof of your deposit.


Proof of identity and address: This could be a passport, driving license, utility bill, council tax bill, etc.


Details of debts and liabilities: If you have any outstanding loans or other financial commitments, you’ll need to disclose these.


Projection of future earnings: Some lenders may require a projection of your future income, particularly if your business is new or your income has recently increased. This would typically come from an accountant.


Business details: You may also need to provide details about your business, such as the nature of the business, its trading history, and your ownership share, if applicable.


It’s worth noting that while it can be more complex for self-employed individuals to get a mortgage, there are lenders who specialise in self-employed mortgages and are more familiar with complex income situations. A mortgage broker can be very helpful in guiding you through this process and helping you find a lender who is a good fit for your circumstances.

Self-employed mortgage criteria

While the exact criteria for a self-employed mortgage can vary depending on the lender, there are some general factors that most lenders consider. Here are some key criteria:

Trading history: Most lenders require you to have at least two to three years of accounts or tax returns. Some may consider one year if you have a strong trading history or experience in a similar industry.

Income: The amount and consistency of your income play a critical role. Lenders typically calculate your income as an average of the last two to three years if you’re a sole trader or partner. If you’re a director of a limited company, they typically consider your salary plus dividends. Some lenders might consider retained profits as well.

Credit history: As with any mortgage, a good credit history is essential. Lenders will review your credit report to assess your financial reliability.

Deposit: The size of your deposit matters; typically, a larger deposit could make your application more attractive to lenders, as it reduces their risk.

Debt-to-income ratio: This is a measure of how much of your income is spent on debt repayments. Lenders prefer a lower debt-to-income ratio, as it suggests you have a good balance between income and existing debts.

Affordability: Beyond your income, lenders will consider your regular outgoings, lifestyle expenses, and any existing debt repayments to ensure you can afford the mortgage repayments.

Age of the business: For self-employed individuals, the age of your business may also play a role. Businesses that have been around longer may be viewed as more stable.

Business structure: Whether you’re a sole trader, in a partnership, or a director of a limited company, it can affect how lenders assess your income and eligibility.

Remember, it can be beneficial to work with a mortgage broker familiar with the needs and challenges of self-employed applicants. They can provide advice tailored to your situation, help you understand what different lenders are looking for, and assist in finding a lender that suits your circumstances.

How many years of accounts do I need for a self-employed mortgage?

In the UK, most mortgage lenders require self-employed applicants to provide at least two to three years of accounts or tax returns. This is because they want to see a track record of steady, reliable income before they approve a mortgage.

However, this can vary between lenders. Some might accept just one year of accounts, particularly if you have previous experience in the same line of work, a regular stream of work or contracts, or a strong financial position in other ways. Others, particularly those offering the most competitive rates, might want to see even more than three years of accounts.

It’s important to note that these accounts should ideally be prepared by a certified or chartered accountant. This gives the lender more confidence in the figures provided.

If you’ve been trading for less than a year, getting a mortgage could be challenging but not impossible. There are specialist lenders who cater to newly self-employed people, but their rates might be higher. Consulting with a mortgage broker could be helpful in these cases, as they will know which lenders are most likely to consider your application.

What lenders offer the best self-employed mortgages?

The “best” lender for a self-employed mortgage varies depending on individual circumstances, including income stability, the age of your business, your credit score, and the size of your deposit. Here are some general types of lenders that self-employed individuals might consider:

High street banks: Many traditional banks offer mortgages for self-employed individuals. This includes banks like Barclays, HSBC, Lloyds, and NatWest. The benefit of high-street banks is that they often offer competitive interest rates and may have more resources for borrowers. However, their criteria can sometimes be stricter compared to other lenders.

Building societies: Building societies like Nationwide, Leeds, or Coventry can be a good option. They often take a more personal approach, and some are more flexible in their lending criteria.

Specialist lenders: There are lenders who specialise in mortgages for people with unique circumstances, including self-employment. These lenders, such as Precise Mortgages, Kensington, or Aldermore, may be more flexible with their criteria, but their rates can sometimes be higher.

Challenger banks and online lenders: Some newer banks and online lenders may also offer self-employed mortgages. These include banks like Metro Bank or online lenders like Atom Bank.

It’s often worth working with a mortgage broker when searching for a self-employed mortgage. A broker can provide up-to-date advice on the best options for your specific circumstances, help with the application process, and potentially give you access to deals you might not find on your own.

Keep in mind that it’s not just about finding a lender that will approve your mortgage; it’s about finding the best terms, the best rates, and the right mortgage product for your needs. Always shop around, compare different lenders, and consider getting independent financial advice before making a decision.

Do self-employed people pay higher interest rates?

Being self-employed does not automatically mean you will pay higher interest rates on a mortgage. Mortgage interest rates are generally determined by the size of your deposit (or equity if you’re remortgaging), your credit score, and the overall risk the lender associates with lending to you, not solely on your employment status.

However, if a lender views a self-employed borrower as being at higher risk, for example, due to inconsistent income, they may offer a loan at a higher interest rate to offset this risk. Also, if you have a newly established business and can only show one or two years’ worth of accounts, you might have fewer lenders to choose from, reducing your chances of securing the best rates.

How will a lender calculate my self-employed mortgage earnings?

Mortgage lenders calculate earnings for self-employed applicants differently than for salaried applicants. This calculation depends on the nature of the self-employment and the structure of the business. Here’s how lenders usually consider income for various self-employed structures:

Sole trader: If you’re a sole trader, lenders usually consider your net profit as your income.

Partnership: If you’re in a partnership, lenders usually consider your share of the net profit as your income.

Limited company: If you’re a director of a limited company, lenders usually consider your salary plus dividends as your income. Some lenders may also consider retained earnings in the business.

In all these cases, lenders typically look at the average income over the past two to three years, although some may consider only the most recent year if your income is increasing.

However, the specifics can vary greatly from lender to lender. Some lenders may take a more flexible approach, especially if your income fluctuates or if there’s a clear upward trend in your earnings.

What are self-certification mortgages, and can I get one?

Self-certification mortgages, also known as “self-cert mortgages,” were designed for self-employed people and others with irregular or difficult-to-prove income. With a self-certification mortgage, the borrower was able to declare their income without having to provide the standard forms of evidence, such as payslips or tax returns.

However, self-certification mortgages were banned in the UK by the Financial Conduct Authority (FCA) in 2014 following the financial crisis. This was part of the Mortgage Market Review regulations, aimed at ensuring borrowers could afford their mortgages and prevent the kind of risky lending practices that contributed to the financial crisis.

As of now, all mortgage applicants in the UK, including self-employed individuals, must provide evidence of their income. If you’re self-employed, this typically means supplying at least two to three years’ worth of accounts or tax returns. Lenders must also conduct an affordability assessment to make sure you can afford the repayments, both now and in the future, if circumstances change or interest rates rise.

So, in short, self-certification mortgages no longer exist in the UK. If you’re self-employed and looking for a mortgage, it’s advisable to consult with a mortgage broker who can guide you through your options based on current regulations and lending practices.

What counts as self-employed?

In general terms, you’re considered self-employed if you run your own business and are not employed by a company that pays you a salary or wage.

Here are some examples of what could count as self-employed:

Sole trader: This is the simplest form of business where one individual is the sole owner and has personal responsibility for the business’s liabilities. Sole traders control, manage, and own the business.

Partnership: In a partnership, two or more people share the responsibilities, costs, profits, and losses of a business. Each partner pays tax on their share of the profits.

Limited company: If you own more than 25% of a company’s shares, you’re often considered self-employed for mortgage purposes, even if the company pays you a regular salary. The company’s finances are separate from your personal finances, but you’re liable for the company up to the amount of your investment.

Contractor or freelancer: If you work on a contract basis for one or more companies or clients but are not on their payroll and receive payment on a per-job or project basis, you would be considered self-employed.

The specific definitions and thresholds can vary between lenders, so it’s always a good idea to discuss your situation with a mortgage broker or the lender directly. It’s also important to note that if you’re self-employed, lenders usually require two to three years of accounts or tax returns to verify your income when you apply for a mortgage.

How will you be assessed as a self-employed mortgage applicant?

As a self-employed mortgage applicant, lenders will assess you based on several factors to determine your eligibility for a mortgage and the amount you can borrow.

Here’s an overview of the main aspects they consider:

Trading history: Lenders usually want to see at least two to three years’ worth of accounts or tax returns to demonstrate consistent income. Some lenders may consider one year of accounts in certain circumstances, especially if you have a track record in the same line of work.

Income assessment: How a lender assesses your income can depend on your business structure. If you’re a sole trader or in a partnership, lenders typically consider your share of the profit. If you’re a director of a limited company, they typically consider your salary plus dividends. Some lenders may also consider retained profits in the company.

Affordability: Lenders will look at your regular income against your outgoings to ensure you can afford the mortgage repayments. This can include not only your business expenses but also personal expenses like bills, living costs, other loan repayments, and general lifestyle expenses.

Credit history: Your credit score and credit history will be reviewed to see if you’ve managed credit well in the past. Any issues like late payments, defaults, or bankruptcies could affect your application.

Deposit size: The size of your deposit can also influence a lender’s decision. A larger deposit generally reduces the lender’s risk, which can help your application.

Business stability: Lenders may consider the age and stability of your business. If your business is new, providing evidence of future contracts or showing your experience in the industry might help.

Debt-to-income ratio: Lenders will look at your existing debts compared to your income. High levels of debt can be a concern to lenders as it could affect your ability to repay the mortgage.

Each lender has its own criteria, so it’s possible to be turned down by one lender but accepted by another. It can be beneficial to work with a mortgage broker who understands the needs of self-employed individuals and can guide you through the process.

How to boost your mortgage chances

Boosting your chances of getting a mortgage involves improving the factors that lenders look at when assessing your application. Here are several steps you can take to increase your odds of mortgage approval:

Improve your credit score: Pay your bills on time, reduce your debt-to-income ratio, and make sure there are no errors on your credit report. Avoid taking out new credit in the run-up to applying for a mortgage.

Save a larger deposit: The more money you can put down, the less risk the lender takes on, which could increase your chances of approval and help you secure a better interest rate.

Keep your financial situation stable: Avoid making significant changes to your financial situation, like changing jobs or making large purchases, in the months leading up to your application.

Reduce debt: Lenders look at how much debt you have compared to your income, so reducing this ratio can improve your chances.

Keep your documents in order: Make sure your tax returns, business accounts, and other financial documents are up to date and ready to present to the lender.

Show consistent income: The more stable your income, the better. Lenders generally like to see a steady or increasing income over a few years.

Use a mortgage broker: Brokers can give you advice tailored to your situation, help you understand what lenders are looking for, and can often access deals you can’t find on your own.

Prepare a budget: Showing that you’ve budgeted for future mortgage payments can demonstrate to lenders that you’re prepared for the financial commitment.

Consider a professional accountant: Having your accounts prepared by a certified or chartered accountant can make lenders more confident in the accuracy of your income.

Show evidence of regular work: If you’re a freelancer or contractor, showing long-term contracts or steady work can help.

Can I get a joint mortgage with a self-employed worker?

Yes, you can certainly get a joint mortgage with a self-employed worker. In fact, having a joint application might even strengthen your application, especially if the other applicant (i.e., the one who is not self-employed) has a stable, regular income and a good credit history.

When you apply for a joint mortgage, lenders consider the financial circumstances of both applicants. That means they’ll look at both of your incomes, credit histories, and debts when deciding whether to approve the mortgage and how much to lend. If the employed person has a steady income and a good credit history, this can provide some reassurance to the lender.

It’s important to remember that when you take out a joint mortgage, both applicants are equally responsible for making the repayments. If one person can’t or doesn’t make the payments, the other person is still liable. So, it’s essential to discuss this and make sure both parties understand their responsibilities.

How long do you need to be self-employed to get a mortgage?

Generally, mortgage lenders in the UK prefer self-employed applicants to have at least two to three years of accounts or tax returns to demonstrate a consistent income. This requirement can vary from lender to lender. Some may accept only one year’s worth of accounts, especially if you can show you have a history in the same line of work before becoming self-employed.

There’s a practical reason behind this. Lenders want to be sure that your business is stable and has a sustainable income. With at least two to three years’ worth of accounts, they can assess whether your income has been consistent, increasing, or decreasing.

However, each lender has its own criteria, and some may be more flexible than others. For instance, if you have been self-employed for a shorter period but were working in the same industry before starting your own business, some lenders may take this into consideration.

It’s worth noting that being self-employed for a longer period isn’t necessarily a guarantee of approval. Lenders will also look at other factors, like your credit history, deposit size, and affordability when deciding whether to approve your application.

Getting a mortgage as a small business owner

Getting a mortgage as a small business owner can be more challenging than for those with traditional employment, but it’s certainly possible with the right preparation and approach. Here are some steps to consider:

Understand your options: As a small business owner, you might operate as a sole trader, a partner in a partnership, or a director of a limited company. The way your income is assessed will depend on your business structure. Be sure to understand how lenders will look at your income based on your particular situation.

Keep your financials up to date: Make sure your accounts are up-to-date and accurate. Lenders will typically ask for two to three years’ worth of accounts or tax returns, though some may accept one year in certain circumstances.

Hire a certified or chartered accountant: Accounts prepared by a certified or chartered accountant can lend more credibility to your reported income.

Maintain good credit: A good credit score is important for any mortgage applicant. Pay your bills on time, keep credit card balances low, and rectify any errors on your credit report.

Save a large deposit: The larger your deposit, the less risk the lender takes on. This can not only increase your chances of approval but may also secure you a better interest rate.

Be prepared to show business stability: Lenders want to see that your business income is steady and reliable. If your income fluctuates, you may need to provide additional evidence of your business’s viability and potential future earnings.

Minimise your personal drawings: While it can be tempting to draw profits out of your business, keeping profits within the business can demonstrate higher net profits, which may increase the amount you can borrow.

Use a mortgage broker: A mortgage broker can help you find lenders who are willing to work with small business owners. They understand the market and can access deals you might not find on your own.

What if I only have accounts for one year or less?

If you have been self-employed for one year or less, obtaining a mortgage can be more challenging but it’s not impossible. Here’s what you should know:

Fewer choices: There are fewer lenders who will consider self-employed applicants with only one year’s worth of accounts or less. However, they do exist.

Specialist lenders: Some lenders specialise in mortgages for the self-employed and contractors. These lenders may use different methods to assess your income, such as taking into account your day rate for contract work.

Higher rates: Because there’s more perceived risk involved for the lender, you might find that interest rates are slightly higher compared to applicants with a longer trading history.

Use a mortgage broker: A mortgage broker can help you navigate the market, find lenders who are willing to work with newer self-employed individuals, and guide you on the most suitable deals.

Larger deposit: Providing a larger deposit might help your case. The larger your deposit, the less the lender stands to lose if you default, so this can sometimes make them more willing to lend.

Solid trading history: If you’ve been self-employed for a short time but have a solid trading history in the same industry (as a PAYE employee, for example), some lenders may take this into consideration.

Projections: Some lenders may consider projected income if you have a contract lined up or if you can provide a projection from a certified or chartered accountant.

How do I prove my income for a mortgage when self-employed?

When you’re self-employed and applying for a mortgage, you’ll need to provide several documents to prove your income. Here’s a list of the usual documents lenders will ask for:

Tax returns: In the UK, lenders typically ask for your SA302 forms for the past two to three years. An SA302 is a summary of your annual income, as reported to HM Revenue & Customs (HMRC). It shows your total income and the tax you’ve paid on it.

Business accounts: If you run a limited company, lenders may also want to see your business accounts to confirm your salary and any dividends you’ve taken. These should be prepared by a certified or chartered accountant.

Bank statements: Both personal and business bank statements may be requested. These help to confirm the income declared on your tax returns and show your monthly income and outgoings.

Proof of future work: If your income varies significantly from year to year or if you’ve been self-employed for a shorter period, lenders may ask to see evidence of future work or contracts.

The specific documents and information you’ll need to provide can vary between different lenders. Some lenders may ask for additional information, depending on your circumstances and their specific lending criteria.

What mortgage options are available for sole traders?

As a sole trader, you’re considered self-employed for mortgage purposes, so the process of applying for a mortgage can be slightly more complex than if you were an employee. However, there are certainly options available to you.

Standard residential mortgages: As a sole trader, you have access to the same mortgage products as everyone else. These include fixed-rate mortgages, adjustable-rate mortgages, and more. The main difference is that instead of showing payslips to prove your income, you’ll need to provide business accounts or tax returns.

Self-employed mortgages: While there aren’t mortgages specifically labelled for the self-employed, there are lenders who specialise in or are more friendly towards applications from self-employed individuals. These lenders understand the unique income situation of the self-employed and may have more flexible lending criteria.

Buy-to-let mortgages: If you’re looking to invest in property as a landlord, you could consider a buy-to-let mortgage. The amount you can borrow is typically based on the expected rental income from the property rather than your personal income.

Joint mortgages: If you’re buying with a partner who’s an employee, you could consider a joint mortgage. The lender will take both your incomes into account when deciding how much to lend.

Contractor mortgages: If you’re a contractor working on a day rate, some lenders will annualise your day rate to calculate your income, which can sometimes result in a higher borrowing amount.

Guarantor mortgages: In some cases, you might consider a guarantor mortgage. This is where another person (usually a close family member) agrees to cover your mortgage payments if you can’t.

When you’re looking for a mortgage, it can be helpful to work with a mortgage broker who specialises in self-employed mortgages. They can guide you through the process, help you gather the necessary documentation, and find lenders who are most likely to approve your application.

When am I considered self-employed?

In the UK, you’re generally considered self-employed if you meet one or more of the following criteria:

You run your own business: If you’re a sole trader or run a business as a partnership, you’re typically considered self-employed.

You’re a contractor or freelancer: If you perform work for multiple clients and aren’t on any company’s payroll, you’re considered self-employed.

You’re a company director: If you’re a director of a limited company and own more than 25% of its shares, mortgage lenders typically consider you as self-employed even though technically you’re an employee of your company. This is because you have significant control over your income.

Being self-employed means you have control over your income and work but also requires you to handle your own taxes and National Insurance contributions. You should register as self-employed with HMRC as soon as you start self-employment. If you’re uncertain about your status, you may want to seek advice from a tax advisor or HMRC.

When it comes to applying for a mortgage, lenders usually require self-employed individuals to provide more extensive proof of their income than salaried employees, typically in the form of tax returns or business accounts. They may also have different criteria for evaluating your income and affordability for a mortgage.

How can a contractor or freelancer secure a mortgage?

As a contractor or freelancer, securing a mortgage can be a little more complex due to the variable nature of your income. However, it’s definitely possible. Here are some steps to consider:

Prepare your accounts: Have at least two years of accounts or tax returns available. These should ideally be prepared by a certified or chartered accountant. Some lenders might accept one year’s worth of accounts in certain circumstances.

Understand your income: Lenders assess contractors’ income in different ways. Some will annualise your daily or hourly rate, while others will look at your net profit or salary plus dividends if you’re working through a limited company. Understanding how lenders will look at your income can help you prepare.

Maintain a good credit score: A good credit score is crucial to securing a mortgage. Ensure you pay bills and loans on time, and keep your credit utilisation low.

Save for a larger deposit: A larger deposit often makes lenders more willing to offer a mortgage as it reduces their risk.

Have a contract history: A solid history of ongoing contracts can show lenders that your work is reliable. Keep all your past contracts and have details of any upcoming work.

Consult a specialist broker: Mortgage brokers who specialise in self-employed or contractor mortgages can be extremely helpful. They understand the market and can guide you to the lenders most likely to accept your application.

Keep your finances healthy: Avoid sudden, large expenses and maintain healthy bank balances in the months leading up to your mortgage application.

Avoid breaks in your contract: If you can, try to avoid long breaks in your contract in the months leading up to your mortgage application. Continuity of contracts can demonstrate to lenders that your work and income are stable.

What common challenges do self-employed individuals face when applying for a mortgage?

Self-employed individuals can face several challenges when applying for a mortgage:

Proving income: One of the most significant challenges is proving a stable income. Lenders generally prefer applicants with a steady, predictable income, which can be harder to demonstrate if you’re self-employed. You’ll typically need to provide two to three years of accounts or tax returns, but even then, income from self-employment can often fluctuate, which can be a concern to lenders.

Variability of income: Many self-employed individuals experience variations in their income throughout the year, which can make lenders cautious. If you have a ‘feast or famine’ income cycle, it may make it harder to secure a mortgage.

Less lender choice: Not all lenders are comfortable dealing with self-employed applicants, which can reduce the number of mortgage options available.

Complexity of financial picture: The finances of a self-employed individual can be more complex than those of a traditionally employed person, particularly if the business is a partnership or limited company. This complexity can make it more difficult for lenders to assess the risk associated with the mortgage.

Business expenses: Self-employed individuals often reduce their taxable income by deducting business expenses, which is perfectly legal and sensible, but it can result in a lower net income figure for mortgage purposes.

Recent self-employment: If you’ve recently become self-employed and don’t have the two to three years’ worth of accounts most lenders require, you may find it challenging to get a mortgage.

Impact of COVID-19: In response to the pandemic and its economic impacts, some lenders have tightened their criteria for self-employed applicants, which could make obtaining a mortgage more difficult.

Despite these challenges, many self-employed individuals successfully secure mortgages every year. Seeking advice from a mortgage broker experienced in self-employed mortgages can be very helpful in navigating these challenges. They can help you understand the requirements of different lenders and find a mortgage product that suits your circumstances.

Self-employed individuals can face several challenges when applying for a mortgage:

Proving income: One of the most significant challenges is proving a stable income. Lenders generally prefer applicants with a steady, predictable income, which can be harder to demonstrate if you’re self-employed. You’ll typically need to provide two to three years of accounts or tax returns, but even then, income from self-employment can often fluctuate, which can be a concern to lenders.

Variability of income: Many self-employed individuals experience variations in their income throughout the year, which can make lenders cautious. If you have a ‘feast or famine’ income cycle, it may make it harder to secure a mortgage.

Less lender choice: Not all lenders are comfortable dealing with self-employed applicants, which can reduce the number of mortgage options available.

Complexity of financial picture: The finances of a self-employed individual can be more complex than those of a traditionally employed person, particularly if the business is a partnership or limited company. This complexity can make it more difficult for lenders to assess the risk associated with the mortgage.

Business expenses: Self-employed individuals often reduce their taxable income by deducting business expenses, which is perfectly legal and sensible, but it can result in a lower net income figure for mortgage purposes.

Recent self-employment: If you’ve recently become self-employed and don’t have the two to three years’ worth of accounts most lenders require, you may find it challenging to get a mortgage.

Impact of COVID-19: In response to the pandemic and its economic impacts, some lenders have tightened their criteria for self-employed applicants, which could make obtaining a mortgage more difficult.

Despite these challenges, many self-employed individuals successfully secure mortgages every year. Seeking advice from a mortgage broker experienced in self-employed mortgages can be very helpful in navigating these challenges. They can help you understand the requirements of different lenders and find a mortgage product that suits your circumstances.

What impact does irregular income have on my ability to get a mortgage if I am self-employed?

Irregular income can impact your ability to secure a mortgage as a self-employed person because lenders typically favour borrowers with a predictable, steady income. This is because steady income makes it easier for them to assess the risk involved in lending to you, as they can be more confident that you’ll be able to keep up with your mortgage repayments.

When income is irregular or fluctuates, it can be more challenging to convince a lender that you’ll be able to afford the mortgage repayments, particularly during periods when your income may be lower.

Lenders usually calculate how much they’re willing to lend based on your average income over a certain period (typically two to three years). If your income varies significantly from year to year, this could lower the amount the lender is willing to offer you.

You may be required to provide more extensive documentation to prove your income.

What types of self-employed mortgages are available?

While there isn’t a specific mortgage product called a “self-employed mortgage,” self-employed individuals have access to the same types of mortgage products as anyone else. The main difference lies in the process of proving income and affordability. Here are some of the mortgage types that are available:

Fixed-rate mortgages: With a fixed-rate mortgage, the interest rate stays the same for a set period, typically between two to five years, but sometimes longer. This means your monthly repayments stay the same during that period, making it easier to budget.

Variable-rate mortgages: With a variable-rate mortgage, the interest rate can change. The two main types of variable-rate mortgages are tracker mortgages, which track the Bank of England base rate plus a set percentage, and standard variable rate (SVR) mortgages, where the rate is set by the lender.

Discount mortgages: These are a type of variable-rate mortgage where the interest rate is set at a discount to the lender’s standard variable rate for a certain period.

What help is available for self-employed first-time buyers in the UK?

As a self-employed first-time buyer in the UK, you have access to several schemes designed to support individuals getting onto the property ladder:

Shared ownership: Shared Ownership allows you to buy a share of a property (between 25% and 75%) and pay rent on the remainder. Over time, you can increase your share in the property until you own 100% if you wish.

Lifetime ISA (LISA): The Lifetime ISA allows you to save up to £4,000 per year towards your first home (or retirement), with the government adding a 25% bonus to your savings.

Right to Buy: If you’re a council tenant or housing association tenant, you may have the right to buy your home at a discount. This discount can significantly reduce the amount you need to borrow for a mortgage.

Stamp Duty Relief: First-time buyers in England and Northern Ireland benefit from relief on Stamp Duty Land Tax (SDLT) on properties costing up to £425,000, with a reduced rate of up to £650,000.

First Homes Scheme: This is a new scheme proposed by the UK government, aiming to help local first-time buyers (and key workers) to purchase a home in their area for a discount of 30% compared to the market price.

Can a self-employed person get a buy-to-let mortgage?

Yes, a self-employed person can get a buy-to-let mortgage. Self-employed individuals have access to the same range of mortgage products as employed individuals, including buy-to-let mortgages. However, the criteria and process for obtaining a mortgage may be slightly different.

Here are some things to consider:

Income verification: Just like any other type of mortgage, you’ll need to prove your income. For a buy-to-let mortgage, lenders often require your personal income to be at a certain level, usually around £25,000 per year. You’ll need to provide proof of this income, typically in the form of two years of accounts or tax returns if you’re self-employed.

Rental income: In addition to personal income, lenders will want to see that the expected rental income from the property is sufficient to cover the mortgage repayments by a certain margin, typically 125% to 145% of the mortgage payment. This is known as the rental coverage ratio.

Deposit: Buy-to-let mortgages typically require a larger deposit than residential mortgages, often 25% of the property’s value or more.

Credit history: As with any mortgage, a good credit history will make it easier to secure a buy-to-let mortgage.

Age: Some lenders have age restrictions for buy-to-let mortgages, requiring borrowers to be under a certain age (often 70 or 75) at the end of the mortgage term.

What is the process of refinancing a self-employed mortgage?

Refinancing a mortgage as a self-employed individual is very similar to the process of getting your original mortgage. Here’s a general outline of the process:

Evaluate your need: First, determine why you want to refinance. People typically refinance to take advantage of lower interest rates, reduce their monthly payments, switch from a variable-rate to a fixed-rate loan, or access equity in their home.

Check your credit score: Your credit score is a significant factor in qualifying for a loan and the interest rate you’ll receive. Ensure you have a good credit score before applying.

Gather your financial documents: As a self-employed individual, you will likely need to provide more extensive documentation than a traditionally employed person. This might include tax returns for the past two or three years, profit and loss statements, balance sheets, and bank statements.

Assess your home’s value: The amount you can borrow is often determined by the value of your home. Some lenders may require a new appraisal.

Shop around for rates: Different lenders may offer different interest rates and loan terms, so it’s a good idea to get quotes from multiple lenders.

Apply for the refinance: Once you’ve chosen a lender, you’ll complete the application process. This will typically include submitting all your documentation and completing an application form.

Close on the loan: If your application is approved, you’ll go through the closing process, which includes paying any closing costs or fees, signing documents, and setting up your new payment schedule.

Just like with your original mortgage, it can be beneficial to work with a mortgage broker or financial advisor who’s familiar with self-employed mortgages. They can guide you through the process and help you understand your options.

Also, remember that refinancing involves costs, including possible early repayment charges for your current mortgage and fees for the new one. It’s important to consider these and ensure that the potential benefits of refinancing outweigh the costs.

What are the common mistakes to avoid when applying for a self-employed mortgage?

Applying for a mortgage as a self-employed individual can be more complex than for those with traditional employment. Here are some common mistakes to avoid:

Insufficient record keeping: Lenders will want to see a clear and consistent record of your income, often for at least two to three years. Keep all your financial documents organised and up-to-date.

Not declaring enough income: While it’s tempting to declare lower income to save on taxes, doing so can harm your chances of securing a mortgage as it shows less income for the lender to base their loan amount on.

Changing legal structure: Changing your business’s legal structure (like going from being a sole trader to a limited company) before applying for a mortgage can make your income seem unstable or unpredictable to lenders.

Applying with bad credit: If your credit score is poor, you may find it more challenging to secure a mortgage. Before applying, check your credit report, correct any errors, and take steps to improve your score if needed.

Not considering a mortgage broker: Mortgage brokers, especially those who specialise in self-employed mortgages, can provide invaluable assistance. They understand the lenders’ criteria and can guide you to the right products for your needs.

Forgetting to save for a deposit: The larger your deposit, the lower your Loan to Value (LTV) ratio, which can make lenders see you as a lower risk. Saving for a significant deposit can also lower your monthly repayments.

Neglecting to show stability: Lenders like to see stability. This can be reflected in your income, but also in other areas, like living at the same address for a good length of time or showing that your business has consistent work.

Not preparing for higher rates or fees: Some lenders see self-employed individuals as higher risk, which might mean higher interest rates or fees. Be sure to budget for this possibility.

Overlooking the impact of COVID-19: Some lenders have become more cautious due to the pandemic’s impact on the economy and certain sectors. If your business has been affected, be ready to explain this to lenders.

Applying for a mortgage when self-employed can be a more complex process, but avoiding these mistakes can improve your chances of a successful application. It’s always a good idea to seek professional advice if you’re unsure.

Are bridging loans an option for self-employed individuals struggling to secure a mortgage?

Yes, bridging loans can be an option for self-employed individuals who are having trouble securing a traditional mortgage. However, they are generally considered a short-term finance option, typically used to ‘bridge’ a gap between a debt coming due and the main line of credit becoming available.

Bridging loans can be helpful in certain situations, such as:

Buying a property at auction: A bridging loan can provide quick funds if you’re successful at auction and need to pay in full within a short period.

Purchasing a property before selling your current one: If you find your dream home but haven’t yet sold your existing property, a bridging loan can help cover the cost until you sell your current home.

Property development or renovation: If you’re planning to renovate a property before selling it or getting a traditional mortgage, a bridging loan can provide the necessary funds.

However, it’s important to note that bridging loans often come with higher interest rates and fees than traditional mortgages, and the total amount needs to be repaid in a shorter time frame, usually within a year. Also, they are typically secured against a property, which means if you can’t repay the loan, the lender could repossess the property.

Before considering a bridging loan, it’s vital to have a clear exit strategy for paying it off (usually through the sale of a property or securing a long-term mortgage). You should also consider other options like a secured loan or a let-to-buy mortgage, which may be more cost-effective.

Are there specific mortgage brokers for self-employed individuals?

Yes, there are mortgage brokers who specialise in working with self-employed individuals. These brokers understand the unique challenges faced by self-employed individuals when applying for a mortgage and can provide invaluable assistance in navigating the mortgage application process.

Self-employed individuals often have more complex income structures compared to those who are traditionally employed. They may draw income from different sources or have variable income levels. Furthermore, the way their business income is structured for tax purposes may make it more difficult to prove income in a way that satisfies a lender’s criteria.

Mortgage brokers who specialise in self-employed clients understand these complexities. They know which lenders are more open to working with self-employed individuals and are familiar with the different criteria these lenders use when assessing mortgage applications. They can help you understand what documentation you’ll need to provide, how to present your finances in the best light, and how to improve your chances of getting approved for a mortgage.

When looking for a mortgage broker, it’s important to choose one who is fully certified and regulated by the Financial Conduct Authority (FCA) in the UK. You should also look for brokers with good reviews and a proven track record of helping self-employed individuals secure mortgages.

Lastly, remember that while a specialised mortgage broker can certainly assist in the process and potentially improve your chances of getting a mortgage, they can’t guarantee approval. The final decision always rests with the lender.

FAQs

I took a government grant during the COVID-19 pandemic. Can I still get a self-employed mortgage?

Yes, you can still apply for a mortgage if you’ve taken a government grant during the Covid-19 pandemic. However, some lenders may consider the use of the grant as an indication that your income has been negatively affected. This could potentially influence their decision or the terms they offer. Every lender has different criteria, so it’s always best to discuss your situation with a mortgage broker or directly with the lender.

Can I get a joint mortgage with a self-employed person?

Yes, you can get a joint mortgage with a self-employed person. Lenders will consider the income, credit history, and financial circumstances of both applicants when making their decision.

Does the type of industry I work in as a self-employed individual affect my mortgage eligibility?

Potentially. Lenders will look at the stability of your income, and some industries are considered less stable than others. If you’re in an industry that’s seen as high risk or has significant income fluctuations, it might be more challenging to secure a mortgage. However, having a solid financial history and a good credit score can help.

Can I secure a mortgage if I'm self-employed with a low deposit?

It’s possible, but having a larger deposit generally increases your chances of securing a mortgage and may also give you access to better rates. If you have a low deposit, government schemes like Shared Ownership might be available to assist you.

What if I don't have the right accounts?

Lenders generally require at least two years of accounts or tax returns to verify your income if you’re self-employed. If you don’t have these, it may be harder to secure a mortgage. However, some lenders may be willing to consider other evidence of income or financial stability.

Does being self-employed affect getting a mortgage?

Being self-employed can make the mortgage process more complex, but it doesn’t necessarily prevent you from getting a mortgage. You’ll need to provide more documentation, and lenders will look carefully at your business’s financial health and stability.

Can self-employed individuals with a newly established business get a mortgage?

It can be more challenging as most lenders require at least two years of accounts or tax returns. However, some lenders might be flexible if you can demonstrate a successful track record in the same line of work prior to starting your own business or if you have other strong financial credentials.

What impact does taking a payment holiday have on a self-employed mortgage?

Taking a mortgage payment holiday shouldn’t directly affect your credit score, as it’s been agreed upon with your lender. However, lenders may consider this when assessing your financial stability. It’s important to discuss this with potential lenders or a mortgage broker to understand the potential impacts on any future mortgage applications.

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