Updated: December 10, 2021

A Complete Guide to Mortgages for the Self-Employed

Self-employed and looking for a mortgage? Read our in-depth guide for everything you need to know.

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Pete Mugleston

Author: Pete Mugleston - Mortgage Expert

Updated: December 10, 2021

Getting a mortgage often feels like a steeper mountain to climb if you’re self-employed, but that doesn’t always have to be the case. By following this in-depth guide you’ll be much better informed and prepared when navigating your way through the application process.

Can you get a mortgage if you’re self-employed?

Yes, of course you can. Working for yourself shouldn’t be a barrier to any type of credit, including mortgages. If you’re self-employed you’re just as entitled to apply for the same mortgage packages and be assessed using the same eligibility criteria as someone who’s in full-time employment. The only real difference is the way your income will be assessed.

Is it more difficult to get approved?

It can certainly feel harder. The fact is mortgage lenders are looking for stability when assessing whether an applicant can afford the repayments and this is where you’ll face your biggest hurdle. Large fluctuations in income from one year to the next are a fact of life for many self-employed people but this also makes prospective lenders quite nervous.

Whereas an employee can offer regular payslips, contracts of employment or employer references, a self-employed applicant will need to find different ways of providing a lender with sufficient proof of income.

How long do you need to have been self-employed for?

Ideally, most mortgage lenders are looking for a track record for your business of two to three years so they can more confidently assess the average net profits for the purposes of approving your application.

If you’ve been self-employed for less than two years – don’t panic! Yes, it will be harder to get approval with a shorter track record but it’s not impossible, particularly if you can produce solid evidence of future contracts showing large potential net profit growth over the next few years and apply for your mortgage through the right broker.

The more evidence you can produce, the better chance you have.

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How to prove your income

Most lenders will want to see at least two, if not, three years of certified accounts showing a clear and consistent profit during this period. The more information and records you can provide, outlining income, expenditure and operating costs, the better your chances will be.

The type of evidence you can provide as proof of income for a lender will depend on your self-employment status; whether you’re a sole trader, in a partnership, or a director of a limited company.

Sole Trader
Partnerships
Limited Company Directors

If you’re a sole trader a lender will focus primarily on your net profits. You can provide evidence of this with copies of your SA302 forms, which are produced when submitting your self-assessment tax returns each year to HMRC.

If you’re in a partnership or a limited liability partnership, the focus is similar to that of sole traders but lenders will look at your specific share of the net profits rather than what the business makes overall. Again, your SA302 forms or tax year overview statements (also available from HMRC) will provide evidence of this.

For company directors, your yearly business accounts will provide evidence to lenders of both the salary you pay yourself and any dividend payments received as proof of income.

If your business income does show evidence of large fluctuations from one year to the next – don’t be too concerned. To a degree, lenders almost expect to see this, which is why they prefer to see evidence over a period of two or three years so they can look at the average net profit made during this period.

In addition, if you can provide evidence of any future contracts and the income they will generate this will also boost your chances of approval. This is particularly relevant if you’ve only been trading for a brief period of, say, less than two years.

This is where appointing an experienced mortgage broker can be a real advantage. They should already know what evidence you need to provide and any additional information that, perhaps you hadn’t thought of, but could really help your application.

How to apply for your mortgage

For anyone who’s self-employed, the mortgage application process presents some key challenges you need to prepare for if it’s to be successful.

This is how we’d recommend you approach it…

Step 1: Have your documents ready

It will help things move along quickly if you have all of the paperwork you’ll need for your mortgage application ready in advance. Ask your accountant or HMRC for copies of all your SA302 statements over the last three years so you already have them to hand when you need them. The same goes for your yearly business accounts and bank statements.

If you’ve agreed any upcoming contracts with new clients, ask them to put something in writing so you can show this as evidence of future income on a mortgage application.

See the next section for a full list of the documents you’ll need to prove your income and support your application.

We also recommend downloading and reviewing your credit reports before you get started. This will give you the chance to prepare for any issues you might face, challenge any inaccuracies and have outdated information removed.

Step 2: Find an experienced mortgage broker

All mortgage lenders are guided by the same rules but they don’t all use the same eligibility criteria. This means your application can be accepted by one lender and declined by another. But which lender will and which lender won’t?

One of the shrewdest decisions you can make, at the outset, is to look for a mortgage broker who specialises in self-employed borrowers, rather than immediately approaching any lenders. This is particularly important if your work situation is complex.

It will also save you considerable time, leaving you able to carry on earning from your self-employment role while your broker does the legwork on your mortgage.

In effect, what you’re doing is hiring someone to manage your application on your behalf. A broker should bring with them a wealth of knowledge, in particular, which lenders tend to look favourably on applications from the self-employed and which don’t.

We know the mortgage brokers we work with all fit this description. If you get in touch we can arrange for someone to give you a call straight away.

Step 3: Apply!

Now is the time to find the right lender and actually applying for your mortgage, but don’t worry, you won’t have to do it alone. The mortgage broker we match you with will take things from here and search the entire market for the ideal lender for you. You won’t have to lift a finger while they round up all of the best mortgage deals that you qualify for.

They’ll offer you bespoke advice to make sure you choose the right one, and after that, they will guide you through the application process and negotiate with the lender on your behalf.

How to prove your income

Most lenders will want to see at least two, if not, three years of certified accounts showing a clear and consistent profit during this period. The more information and records you can provide, outlining income, expenditure and operating costs, the better your chances will be.

The type of evidence you can provide as proof of income for a lender will depend on your self-employment status; whether you’re a sole trader, in a partnership, or a director of a limited company.

Sole Trader
Partnerships
Limited Company Directors

If you’re a sole trader a lender will focus primarily on your net profits. You can provide evidence of this with copies of your SA302 forms, which are produced when submitting your self-assessment tax returns each year to HMRC.

If you’re in a partnership or a limited liability partnership, the focus is similar to that of sole traders but lenders will look at your specific share of the net profits rather than what the business makes overall. Again, your SA302 forms or tax year overview statements (also available from HMRC) will provide evidence of this.

For company directors, your yearly business accounts will provide evidence to lenders of both the salary you pay yourself and any dividend payments received as proof of income.

If your business income does show evidence of large fluctuations from one year to the next – don’t be too concerned. To a degree, lenders almost expect to see this, which is why they prefer to see evidence over a period of two or three years so they can look at the average net profit made during this period.

In addition, if you can provide evidence of any future contracts and the income they will generate this will also boost your chances of approval. This is particularly relevant if you’ve only been trading for a brief period of, say, less than two years.

This is where appointing an experienced mortgage broker can be a real advantage. They should already know what evidence you need to provide and any additional information that, perhaps you hadn’t thought of, but could really help your application.

How much you could borrow

As a general rule, most lenders look at lending between 4 and 4.5 times the average annual net profit for your business but this will vary from lender to lender and will largely depend on two things:

Bullet Tick Size of your deposit
Bullet Tick How much net profit your business has made

The higher deposit you have and higher net profits, the better mortgage deals you’ll be able to successfully apply for.

Other documentation you’ll need

Once you’ve provided the lender with evidence of your earnings, they’ll move on to the other part of the affordability assessment by checking your personal outgoings. For this they’ll usually ask you for six month’s bank statements and details of all your regular monthly bills.

As they do with all applicants, they’ll also ask for copies of your passport or driving license for proof of identity and a utility bill to confirm your address.

Can you get a buy to let mortgage if you’re self-employed?

Yes, it’s possible. Buy-to-let mortgages (BTL) are looked at and assessed quite differently by lenders. It’s highly likely you’ll still be expected to produce evidence of earnings with two to three years’ worth of accounts and tax return submissions as proof of income.

However, a buy to let property is viewed more as an investment opportunity and an application for this type of mortgage will focus more on the amount of rental income that can be generated versus the amount of repayments.

Any rental income forecast from an ARLA-approved letting agent that suggests it can reach above 120%-130% of the mortgage payments will be looked at positively by most lenders.

Get matched with a self-employed mortgage expert

Getting a mortgage when you’re self-employed can be difficult but as you can see from the information outlined in this guide, none of the evidence you’re being asked to produce is insurmountable. Rather than being harder, it’s just a few different hoops to jump through.

The smartest decision you can make in this process is asking for assistance from a mortgage broker who specialises in self-employed applicants. They’ll be able to make what appears to be a complex process much more straightforward and their insider knowledge could prove invaluable.

Call 0808 189 0463 or make an enquiry and we can arrange a free, no-obligation call with a mortgage broker with experience in assisting self-employed people today.

FAQs

Is it mandatory to have my yearly accounts certified by an accountant?

Providing certified accounts from a chartered accountant will certainly improve your chances of approval and a lot of lenders will ask for this, but not all of them. It’s not mandatory but it definitely helps.

It’s worth noting that the job of your accountant is to try and legally minimise the tax you pay each year, which in turn means your accounts will show a lower overall net profit. This, in turn, could have the negative effect of reducing the amount a lender will allow you to borrow.

Can I use the income from a SEISS grant as evidence of earnings?

This has been rather a bone of contention for lots of people who are self-employed and claimed the SEISS grant as a result of the COVID pandemic. There have been quite a few news headlines reporting cases where mortgage applications have been declined by lenders when SEISS funds have been included as evidence of earnings.

The good news is there are lenders who will look at mortgage applications from people who have claimed this grant.

Can taxi and uber drivers apply for a mortgage?

Successfully applying for a mortgage if you’re either a taxi driver or Uber driver is definitely a challenge but it’s not impossible. The difficulty, again, is explaining the large fluctuations in income during the year.

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We can help! We know everyone's circumstances are different, that's why we work with mortgage brokers who are experts in Self Employed Mortgages. Ask us a question and we'll get the best expert to help

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Pete Mugleston

Pete Mugleston

Mortgage Expert

About the author

Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes. The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.

Pete’s presence in the industry as the ‘go-to’ for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for OMA of course!

FCA Disclaimer

*Based on our research, the content contained in this article is accurate as of the most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms that are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs.

Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

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