Self-Employed Mortgages

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.

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.

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.

Compare the best interest rates

Take a look at our table below for some of the best interest rate deals – and eligibility criteria – for self-employed mortgages.

Please note that the above rates were accurate at the time of writing, but are always subject to change. Speaking to a mortgage broker is the best way to find the most up-to-date deals.

How much you could borrow

Try our calculator below to get a rough idea of your maximum borrowing.

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:

The lower your outgoings and higher net profits, the higher the amount you’ll be able to potentially borrow.

There are, however, other factors that will have an indirect impact on the amount you can borrow, such as your credit report and deposit amount. A stronger application means access to more lenders and products, including ones that use higher income multiples.

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 months’ 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 broker who specialises in self-employed mortgages

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.