How to get a self employed mortgage

Being your own boss offers incredible freedom and opportunities, but when it comes to major financial milestones like buying a house, self-employed individuals can find things get a bit complicated. As a result, we’re often asked how to get a self employed mortgage, and while it is true that lenders approach self-employed applications with a specific set of criteria, it’s certainly not something that’s impossible.

This guide is designed to demystify the process for UK freelancers, sole traders, contractors and limited company directors. We’ll explore what lenders look for, the key documentation you’ll need and some practical steps you can take to improve your chances of success

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Why is getting a self employed mortgage perceived differently?

At the end of the day, lenders need to be confident in your ability to make mortgage repayments consistently over many years. With PAYE employees they see a regular salary slip which provides a straightforward view of income.

For self-employed individuals income can sometimes appear less predictable or stable to lenders even if you’re earning well. Therefore they require more detailed evidence of your earnings history and business viability to assess the risk.

Understanding this difference in perceived income stability is the first step when learning how to get a self employed mortgage. It’s not necessarily ‘harder’ but often requires more comprehensive documentation.

What do lenders consider “self-employed”?

For mortgage purposes lenders typically categorise the following as self-employed:

Sole Traders: Individuals who run their own business as an individual.
Partners in a Partnership: Those who share ownership and profits of a business with others.
Limited Company Directors: Usually individuals who own a significant share (often 20-25% or more) of their own limited company.
Contractors: Professionals working on fixed-term contracts often with a day rate (though some lenders have specific criteria for contractors).

If you fall into one of these categories, the way lenders assess your income will differ from a standard PAYE applicant.

Key documentation needed for a self employed mortgage application

Providing clear and comprehensive proof of your income is critical when thinking about how to get a self employed mortgage. While requirements vary slightly between lenders here’s what you’ll generally need:

For Sole Traders and Partnerships:

- Finalised Accounts: Typically two to three years’ worth of accounts prepared and signed off by a qualified accountant.
- HMRC SA302 Forms / Tax Calculations: These documents summarise your income submitted to HMRC for tax purposes for the corresponding two to three tax years.
- Company Accounts: Usually two to three years of finalised company accounts prepared by an accountant.

For Limited Company Directors:

- Personal Income Evidence: Proof of salary drawn and dividends paid to you from the company
- Personal Tax Calculations (SA302s) & Tax Year Overviews: May also be required for your personal income
- Tax Year Overviews from HMRC: These confirm the tax due and paid for each of those tax years.

Lenders will assess your income based on different methods; some use salary and dividends while others might consider your share of net profit after corporation tax.

For Contractors:

- Current and Past Contracts: To demonstrate a consistent work history and earning potential.
- Bank Statements: Showing regular receipt of your day rate income.
- Lenders often annualise your day rate (e.g. day rate x 5 days x 46-48 weeks) but criteria vary.

Regardless of your structure, good record-keeping and having your financial affairs well-organised by a qualified accountant are essential.

How lenders assess self-employed income

When reviewing your application lenders are looking for:

Consistency: A solid track record of earnings ideally stable or increasing over the past two to three years. Significant dips in profit can raise concerns.
Sustainability: Evidence that your business is viable and likely to continue providing a reliable income for the foreseeable future.
Affordability: Clear proof that after business expenses and taxes your income can comfortably cover the mortgage payments alongside your other personal outgoings.

Most lenders will average your declared income/profits over the last two or three years to determine the income figure they’ll use for their affordability calculations.

Tips for improving your chances of getting a self-employed mortgage

If you’re wondering how to get a self employed mortgage with less stress these tips can help:

Engage a qualified accountant: Ensure your accounts are professionally prepared, accurate and submitted on time. This adds credibility.
Build a solid track record: Most lenders prefer at least two years of trading history with three years being even better. If you’re newly self-employed you might need to wait or find a specialist lender.
Save a larger deposit: A bigger deposit reduces the lender’s risk (lower LTV) which can significantly improve your chances and access to better rates.
Maintain an excellent credit score: Pay all personal and business bills on time, manage existing debts responsibly and check your credit report for errors.
Keep business and personal finances separate: This makes it much easier for lenders to clearly see your business income and personal expenditure.
Reduce unnecessary debts: Lowering outstanding personal loans, credit card balances and business debts can improve your affordability assessment.
Be realistic about borrowing: Understand how lenders will likely view your income and use online calculators or get an MIP to gauge a realistic borrowing amount.

The role of a mortgage broker

For self-employed individuals using a whole-of-market mortgage broker is often highly recommended. A good broker who understands how to get a self employed mortgage can be invaluable because they: know which lenders are more receptive to self-employed applicants and have more flexible criteria.

In addition, Brokers understand the nuances of how different lenders assess self-employed income (e.g. treatment of retained profits, dividends or day rates) and can help you prepare and package your application to best showcase your financial stability.

Brokers also can save you significant time and potentially avoid declined applications which can impact your credit history. In essence, a good broker should act as your expert guide navigating the market to find the most suitable deal for your specific circumstances.

OneDome is here to help

Choosing a mortgage is complex but OneDome is here to help. If you have any questions about the specifics of mortgages, the wider mortgage process or want tailored advice on the different types of mortgages that suit your situation you can:

Important: Your home may be repossessed if you do not keep up repayments on your mortgage.