Self-Employed Mortgages
The Mortgage Centres specialise in helping self-employed mortgage applicants obtain the mortgages they need. We have access to a wide range of lenders, from high street banks to specialist lending companies. Our brokers have a wealth of knowledge of how to assess your mortgage application.
Get in touch for a free initial, no-obligation discussion about your mortgage situation.
- What is a Self-employed mortgage?
- Self-employed mortgage calculator
- Read our self-employed mortgage guide
- Self-employed mortgage requirements
- Getting a mortgage when self-employed
- Proof of income for a self-employed mortgage
- How much can you borrow as a self-employed individual?
- What deposit do I need for a self-employed mortgage?
- Self-employed mortgage brokers
- Self-Employed Mortgage FAQs
Do you qualify?
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Fill out our quick and easy Self-employed calculator below. We only require a few details to see how much you may be able to borrow.
What is a self-employed mortgage?
A self-employed mortgage refers to a mortgage product that is obtained by a self-employed individual. Lenders don’t offer specific products to self-employed individuals. Instead, they will be the same as those offered to people in conventional employment. The only difference is the way they assess your income.
The term ‘self-employed’ covers many kinds of situations, from sole traders to contractors and those in company partnerships.
Different businesses will have different ways of distributing dividends and/or profits, and not everyone easily understands scenarios like retained profits and dividends, which we look at when considering your mortgage. Our specialist advisors will ensure all the income from your company is considered.
Specialist Self-Employed Mortgages
Whether you’re self-employed, a contractor, a sole trader, or in a partnership—we can assist you in getting the best mortgage.
Self-employed mortgage requirements
Lenders generally base their self-employed mortgage criteria on historical earnings, rather than the amount you are currently earning right now. Income is the reason why getting a self-employed mortgage can be slightly more complex compared to if you were in conventional employment.
Lenders will typically consider the average of your last two or three years’ income. This will be shown by your SA302 self-assessment tax calculation documents, or your full verified accounts.
We have found that one size does not fit all in our dealings across the many different modes of self-employment. Some lenders are more willing or able to help than others when considering applications.
There are a variety of circumstances you can be in and still obtain a self-employed mortgage. An example is when only one year’s accounts are available. Other instances where we can be an effective mortgage broker for self-employed applicants are:
- Calculations based on retained profit.
- Working with accountant’s certificates.
- Assessments made using only the latest year’s figures.
- Understanding umbrella companies and freelancers.
- Contractors where no accounts are required.
Different lenders will have different definitions for who is classed as self-employed and who isn’t. The most common business types and structures that will be classed as self-employed by lenders are:
- CIS workers
- Company directors
- Contractors
- Freelancers
- Sole traders
- Certain individuals on zero hour contracts
If you’re unsure if you would class as a self-employed individual, why not reach out? One of our expert advisors would be happy to discuss your situation with you.
Getting a mortgage when self-employed
In recent years, mortgage lenders have been obliged to apply stricter criteria to mortgage underwriting. Most take a more cautious and risk-averse approach when assessing affordability. This can lead to frustration, especially if you’re self-employed with a complex income and applying for a mortgage.
However, there are many specialist mortgage lenders willing to lend to self-employed people. These lenders have a deep understanding of the market. This enables them to offer mortgages to a wide range of people, even those with complex income structures.
Below are some tips that can help you prepare before applying for a mortgage.
Before applying for a self-employed mortgage, it can be essential to seek advice from an accountant.
This is because lenders will ask you for a range of financials as a self-employed person, freelancer, or contractor. In particular, they’ll want your business accounts from the last three years, certified by a chartered accountant.
Presenting these figures in the best possible light can make a huge difference to the amount you could borrow.
The way your business is set up can also affect the way lenders look at your application. A sole trader’s profits are seen entirely as income. The SA302 sent by HMRC will show your income received and the tax due for any given financial year.
A partner or director in a company will need to show each partner’s share of the profits. Your accounts will also need to clearly and easily show the lender your own personal income.
Someone operating their business as a limited company and taking a small salary plus dividends is keeping their business and personal finances separate, so they will need to ensure lenders take both into account.
Therefore, using a mortgage broker to support you throughout the process can be vital. Their expertise will allow them to present your financials in the best possible light, in order to obtain the most competitive mortgage product.
Proof of income for a self-employed mortgage
When your mortgage application is submitted, the lender will require proof of income as it’s one of the key factors in assessing your affordability. This will then help them determine how much you can afford to borrow and pay back comfortably.
Below we have outlined the documents required when applying for a self-employed mortgage. This won’t be the exact same for every application, as lender and applicants will differ in their requirements and trading styles. However, the below can definitely help you start to prepare what you may need.
An SA302 form is provided by HMRC and confirms a self-employed mortgage applicant’s income. It details income sources, including self-employment and dividends.
Lenders use it to meet FCA affordability rules. You can access up to four years of SA302s on HMRC’s website when submitting your return online.
You will need to request original SA302s from HMRC if:
- You do not have access to a printer.
- You are applying to a lender who will not accept self-printed forms.
- You submit your tax returns by post.
You can contact the self-assessment helpline on 0300 200 3310, or you can write to them.
The majority of lenders will require at least three months’ worth of bank statements. This gives them a very good overview of your income and expenses, as well as how much cash you currently have available.
Bad spending patterns or cash flow issues can stand out here, which could in turn hold you back in your borrowing capabilities.
Furthermore, your bank statements can also be used to prove your deposit, as a lender will need to know you have the money before you proceed.
Most mortgage lenders are known to request accounts from at least the last two to three years. It is possible to do so with one year’s accounts, although it is more difficult.
From your accounts, a lender will then take the average profit to help them establish your affordability.
As mentioned above, having your accounts prepared by a chartered accountant will be very favourable. This is because lenders want to know all the financials have been prepared by a qualified professional.
How much can you borrow as a self-employed individual?
Giving you a precise idea of how much you could borrow can be difficult without understanding your personal circumstances. This is because lenders no longer just work off a number that they multiply your annual income by.
Now affordability is key, as lenders must ensure you are in the position to afford and make your monthly payments. Mixing this with the complex income of a self-employed person can make it even more difficult to understand what you could borrow.
Some factors a lender will assess to help determine your borrowing capabilities will be:
- Your income and expenses – how much you earn and spend will still play a big part, as of course, part of income is what you will use to make payments. If your expenses are high compared to your income, it can negatively impact your borrowing. This is because lenders may think other financial commitments could impact you making mortgage payments.
- Your credit history – the better your credit, the better your chances of borrowing more. People with bad credit are seen as risky borrowers due to their previous money management history, so lenders won’t want to take a risk with them and allow them to borrow the maximum amount possible. Instead, they will reduce your borrowing capabilities to mitigate their risk exposure.
- Number of applicants – typically, two applicants will be able to borrow more than one. This is because there will be two people’s income to be assessed, rather than one, boosting the amount you can borrow.
If you want an idea of what you could borrow, why not give our Self-Employed Mortgage Calculator a go!
What deposit do I need for a self-employed mortgage?
You’ll be pleased to know that as a self-employed individual you won’t have to put forward a bigger deposit to be accepted. Instead, the requirements will be the same as someone who is in conventional employment.
As a guide, you will usually need at least 5–10% of the property’s value. However, a deposit in the UK is around 20% as this is likely to get you a much more favourable term, with lower interest rates.
Generally, the larger your deposit, the better the mortgage deals you’ll be able to apply for. This is because most lenders have a range of slightly different mortgage products available, usually grouped into bands or tiers.
By putting more money down, you will be able to unlock the more competitively priced products in the better tiers.
Self-employed mortgage brokers
Self-employed mortgages come from regular lenders, but some are more open to self-employed applicants. In more recent years, we have seen many more lenders become accessible to the self-employed.
Even mainstream lenders have realised that creating too many barriers could affect their market share in the future. Lenders have varying criteria, and it can be difficult to navigate the market by yourself.
Consulting a specialist advisor for tailored advice can be crucial in helping you find the most competitive mortgage products.
The Mortgage Centres have a huge level of experience dealing with many niche areas of the mortgage market. We understand the intricacies of our self-employed clients’ lives. We know that every business will have a different trading strategy and take this into account in our assessments.
It’s very important to make a proper assessment of your circumstances. We will present your income and assets in such a way as to be most favourable to a potential mortgage lender.
Self-Employed Mortgage FAQs
The amount you can borrow can vary considerably depending on the lender. Each will have their own method of calculating your income. For example, some may simply use the latest year’s tax return as a guide, while others will take an average of the last two or three years’ figures.
As with a standard mortgage, the larger your deposit and the higher your income, the more you can borrow. Try our self-employed mortgage calculator to gain an indication of how much you could borrow.
If you take a regular salary plus dividends, lenders will consider the combined amount for their mortgage calculations. However, some lenders don’t work this way and may look at your business’s net profit instead.
Complications only arise if the combined salary and dividends drawn are greater than your business’s net profit.
The best course of action is to speak to one of our advisors who can make sure your figures are correct.
Using retained profits for a mortgage can be challenging. Mainstream lenders often don’t count them as income. While they consider dividend income alongside salary, profits left in your business are usually excluded.
However, specialist lenders do consider retained profits. Our brokers can provide a detailed assessment of your options.
Sadly, self-certification mortgages are no longer available in the UK. They were initially rolled out to make the process smoother for self-employed people with complex incomes. Self-certifying your income for the purposes of an affordability assessment was a big success.
After several years, self-cert mortgages were discontinued. The mortgage regulator saw higher risks of defaults from those with complex incomes.
Phil Scott
Director
About the author
Phil has worked in the financial services industry since 1992, having started with a large insurance company. He went self employed in 1996 as an Independent Financial Adviser before setting up his first company, Needham Market Home Financial in 1999.
After four years, he decided to concentrate solely on mortgages and related insurances, and The Mortgage Centres was born. Since then, Phil has been influential in the opening of several new offices as the business continues to grow.
Qualifications
Financial Planning Certificate: 1,2 & 3
Year Attained: 1992
Certificate in Mortgage Advice and Practice (CEMAP)
Year Attained: 2001
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