I'm self employed, can I get a mortgage?
If you work for yourself, it can be harder to get a mortgage because you have to show that you make enough money regularly. However, it's not impossible.
You can prove to the mortgage lender that your income is dependable in various ways. It might just require doing a bit more paperwork.
How will you be assessed?
It's important to recognize that self-employed individuals come in various forms, and depending on the specific category you belong to, lenders may have varying requests and expectations. Self-employed workers will typically fall into these three categories:
Limited Company
If you own a registered limited company, you are responsible for paying yourself through a combination of salary and dividends. When you apply for a mortgage, the lender will inquire about the total amount of your earnings. This involves detailing both the salary you receive and the dividends you collect as a shareholder in the company. Providing comprehensive information about your income structure is crucial for the lender to assess your financial capacity.
Business Partner
In cases where you have one or more business partners, mortgage lenders will request evidence confirming your share of the profits generated by the business. This may involve providing financial statements, partnership agreements, and other documentation that outlines the distribution of profits among the partners. The lender aims to understand your individual financial standing within the business partnership.
Sole Trader
As a contractor or freelancer, you are likely classified as a sole trader. In this situation, you are required to complete a tax self-assessment. This self-assessment must be reviewed and approved by an accountant. To authenticate your income for mortgage purposes, you will then need to furnish your mortgage lender with an SA032 form. This form serves as official documentation that verifies the income you've declared in your tax self-assessment, providing assurance to the lender regarding the stability and accuracy of your financial information.
In essence, the documentation and information required by mortgage lenders vary depending on your business structure—be it a limited company, a partnership, or sole trader status. Ensuring that you fulfill these specific requirements helps facilitate the mortgage application process and increases the likelihood of a successful mortgage approval.
What counts as self-employed?
Being considered self-employed by lenders typically means that you have a significant ownership stake in a business, making up more than 20% to 25% of it, and this business is your primary source of income. In simpler terms, if you own a big chunk of a business that pays you the most money, lenders will see you as self-employed.
There are different ways you might be self-employed. You could be a sole trader, which means you run your own business and are personally responsible for its debts. Alternatively, you might be a company director, overseeing the operations of a company. Another common scenario is working as a contractor, where you provide services to clients on a contractual basis. In any of these situations, if your main income comes from a business where you have a significant ownership share, lenders will categorize you as self-employed.
How long do you have to be self-employed?
For self-employed folks who want a mortgage, one big thing to think about is how long you've been working for yourself. Mortgage lenders pay close attention to this, but instead of stressing about it, it's better to keep good records and have a mortgage expert who can talk directly to the lenders.
Typically, lenders will want to check your financial records for the last two or three years. They use this information to figure out the average amount you earn, which helps them decide how much they can lend you.
If you haven't been self-employed for very long, don't worry too much. If you were working full time before, especially in a similar job, the pay stubs from that time might be good enough.
Just know that lenders might ask for more proof of your money situation and dig into more details. That's why having a mortgage broker who knows the ins and outs of how self-employed income is figured out for mortgages in the UK is super important. They can guide you through the process and make sure everything is in order.
How do you get a self-employed mortgage?
If you work for yourself and are in the market for a mortgage, theoretically, you should have access to the same mortgage options as anyone else. Just like any other borrower, you'll need to go through the lender's affordability tests to make sure you can handle the mortgage payments.
However, there's a notable difference for self-employed individuals. Unlike those with traditional jobs, there's no employer to confirm your income. This means self-employed people have to provide a lot more proof of their earnings compared to other borrowers.
Since the Mortgage Market Review was introduced in 2014, mortgage providers have become more stringent in their lending requirements. They now need convincing evidence that you can comfortably afford to repay the mortgage before they agree to lend you the money. This shift in criteria aims to ensure that borrowers, including self-employed individuals, are financially stable and capable of managing their mortgage payments responsibly. So, if you're self-employed and looking for a mortgage, be prepared to provide comprehensive documentation to demonstrate your income and financial stability.
How much can you borrow as a self-employed person?
The amount you can borrow for a mortgage largely hinges on your income and the size of your deposit. In broad terms, lenders typically consider lending up to 4.5 times your annual income. However, it's important to note that this figure can vary based on your individual situation.
For self-employed individuals, setting aside a substantial amount for a deposit is a smart strategy. This not only enhances your chances of securing a mortgage but also opens up a broader array of options when it comes to selecting a mortgage deal. A larger deposit demonstrates to lenders that you have a significant financial stake in the property, which can positively impact their willingness to lend to you.
By saving diligently for a deposit, self-employed individuals position themselves for more favorable mortgage terms and a potentially smoother application process. It's a proactive step that not only reflects financial responsibility but also increases flexibility and choice when navigating the mortgage market.
What will I need to provide for a self-employed mortgage?
Getting a mortgage when self-employed requires you to provide a wide variety of documents to satisfy lenders. They include:
- Two or more years of certified accounts
- SA302 forms or a tax year overview (from HMRC) for the past two or three years, based on your tax returns. Your accountant can access and provide these for you.
- Evidence of upcoming contracts (if you’re a contractor)
- Evidence of dividend payments or retained profits (if you’re a company director)
As well as evidence of your income, you will also need to give:
- Passport
- Driving licence
- Proof of address – such as a council tax bill, or utility bills dated within three months
- Six months’ worth of bank statements
- Proof of any savings accounts
Lenders will want to examine your bank statements to look at how much you spend on bills and other costs to be certain you could afford your mortgage repayments. They may ask about:
- Household bills
- Travel and commuting costs
- Childcare
- Holidays
- Socialising
- Hobbies
- Credit card and store card repayments
- Loan repayments
- Car finance agreements
- Catalogue credit accounts
What type of mortgage can I get if I am self-employed?
As a self-employed individual, the type of mortgage you can secure is likely to be similar to those available to those with salaried positions. The primary distinction lies in the fact that lenders will apply more stringent affordability criteria since you lack an employer to verify your earnings.
As a self-employed individual, the type of mortgage you can secure is likely to be similar to those available to those with salaried positions. The primary distinction lies in the fact that lenders will apply more stringent affordability criteria since you lack an employer to verify your earnings.
To enhance your chances of mortgage approval, it's essential to take proactive steps. Engaging an accountant who can present a clear picture of your self-employed income is beneficial and improves how lenders view your financial situation. Additionally, working on improving your credit score is crucial. Ensure your presence on the electoral roll, make timely payments, and limit credit card spending. Obtaining a credit report allows you to identify areas for improvement and potentially boost your credit score.
Got a Question?
We got answers
Our friendly advisors are always happy to help with your mortgage enquiries, so call us for a no-obligation chat.
Speak to one of our friendly mortgage consultants now on 0203 835 6263.
What is a self-employed mortgage, and how does it differ from a traditional mortgage?
A self-employed mortgage is designed for individuals who work for themselves, including entrepreneurs, freelancers, and business owners. The main difference lies in the documentation required, as lenders often assess income and stability differently for self-employed applicants.
What counts as self-employed?
Lenders will view you as self-employed if you own more than 20% to 25% of a business, from which you earn your main income.
You could be a sole trader, company director, or contractor.
Do self-employed people have to pay higher mortgage rates?
Self-employed mortgages aren’t necessarily more expensive. As long as you’re able to supply enough information about your income, you should qualify for the same mortgage deal as someone with a comparable salary in a permanent, full-time job.
The mortgage rate you get is much more likely to depend on the size of your deposit, as well as your credit rating.
The more you can put down as a deposit, and the higher your credit rating, the better your mortgage rate is likely to be.
However, if you struggle to get accepted by a mainstream bank, you may have to apply with a specialist lender that deals with self-employed borrowers, and you may find that rates are higher.
Is it hard to get a self-employed mortgage?
If you’re self-employed, it can be more of a challenge to get a mortgage because you’ll need to prove you have a reliable income. But getting a mortgage when self-employed is certainly not impossible.
There are plenty of ways to prove to a mortgage lender that you have a reliable income. It’s usually just a case of jumping through a few extra hoops
How do self-employed people prove income for mortgage?
Self-employed people will also need to provide other documents to show their income. This can include: Two or more years of certified accounts – ideally these should be prepared by a qualified accountant. SA302 forms or a tax year overview from HMRC for the last two to three years.
What if I only have accounts for one year or less?
If you only have accounts for one year or less, you may find it a challenge to convince a lender that you can afford to repay a mortgage – but, again, it’s not impossible. Having evidence that you’ve got regular work or providing proof of future commissions may help.
Just be aware your choice of mortgages may be more limited.
Do mortgage companies check with HMRC?
Do mortgage companies check your details with HMRC? Yes, they can. The HMRC Mortgage Verification Scheme is being used more and more by lenders. The scheme aims to tackle mortgage fraud by allowing lenders to contact HMRC and check if the numbers on your application match their records.
Can I qualify for a self-employed mortgage with irregular income?
Yes, it's possible. Lenders understand the nature of self-employment and may consider your average income over a specified period. Demonstrating consistency and providing a comprehensive financial history can strengthen your case.
Can I get a joint mortgage with a self-employed worker?
Yes, you can. If you’re taking out a joint mortgage, both names will appear on all the required mortgage documentation and you’ll both be responsible for the necessary repayments. What’s more, both incomes will be taken into consideration to assess whether you can realistically buy.
The self-employed applicant will have to go through the process mentioned above, including giving proof of their earnings and outgoings. Ultimately, they’ll have to follow the same steps as if they were applying for a mortgage on their own.
Is there anything else I can do to help my chances of getting a self-employed mortgage?
Lenders prefer self-employed mortgage applicants to provide accounts that have been prepared by a qualified chartered accountant; that way, they can be sure of your reliability. It’s likely that they will focus on the average profit you’ve earned over the past few years.
Having a healthy deposit and a good credit history will also help your chances of securing a mortgage when you’re self-employed.
What are self-certification mortgages and do they still exist?
“Self-certification” or “self-cert” mortgages were specifically designed for the self-employed, allowing people to self-certify how much they earnt in a given year, with no need to provide evidence.
However, self-cert mortgages were banned completely in 2014 due to concerns borrowers were being accepted for mortgages they couldn’t afford.
This means those who are self-employed now need to apply for a mortgage in the same way as everyone else.
What should I do if my self-employed mortgage application is denied?
Don't be discouraged. Seek feedback from the lender to understand the reasons for denial. It might be related to documentation or credit issues. Work on addressing those concerns and consider consulting with a mortgage professional to explore alternative options.
We love getting feedback
What our clients have said
ANY PROPERTY USED AS SECURITY, WHICH MAY INCLUDE YOUR HOME, MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE