Lending Line Official Logo Retina
Call Now
Message Now
Act Now

Self-Employed Mortgages

Curious about getting a mortgage as a self-employed person? Here’s all you need to know about self-employed mortgages and the prospects of getting one in the UK.
Expert Mortgage Advisors

Get Your Free Quote

We've helped 1,000's of customers get the perfect mortgage. Submit your details and we'll match you with an expert who will search over 100 lenders to help find you the right mortgage. It's free & doesn't effect your credit score.

Mortgage lenders require potential borrowers to present them with proof of reliable income, which can be a challenging prospect for self-employed individuals.

Unfortunately, the lack of regular payslips or an employment contract can complicate matters further. 

That said, with the right guidance, you can get a mortgage without any issues as a self-employed individual. So, to help you learn the ins and outs of self-employed mortgages, we’ve created this comprehensive guide.

Read on to learn all about such mortgages, their terms, and tips on getting the best deals possible.

Who Is Considered Self-Employed?

Self Employed Mortgages

Before we discuss how self-employed mortgages work, let’s define what counts as “self-employment.”

As per the UK government, a person is considered to be self-employed if they run their business while shouldering the responsibilities of its success or failure.

Such individuals have none of the rights and responsibilities of an employee, as they are not paid through PAYE (Pay As You Earn).

Of course, it’s possible for an individual to be simultaneously employed and self-employed.

This is directly applicable to those who work in a different profession alongside handling their business.

Typically, lenders expect self-employed individuals to hold at least a 20% stake in their business to be considered self-employed.

Individuals like traders, contractors and business directors fall under this category, and for a mortgage, they must show the lender their proof of income. 

Self-employed borrowers may have to produce more documents than what would be necessary otherwise.

Tax Calculations, Tax Year Overviews, Bank Statements and Company Accounts may be acceptable documentation that showcases that the self-employed individual has a stable income.

Finding A Mortgage Lender for Self-Employed Mortgages

One of the biggest hurdles to getting a mortgage is finding a suitable mortgage lender for your individual circumstances.

Since most lenders have designed their lending requirements around people under full-time employment, self-employed individuals may have to compromise in one way or another.

This may mean that as a self-employed person, you may have to find a lender who specialises in self-employed mortgages or uses different parts of your self-employed income in order to get the best possible affordability or solution for your needs. 

That said, if you have been self-employed for a long time and can provide sustainable income figures over a longer period, banks and building societies may be more willing to offer you a mortgage. 

If you have been employed for a short period ie 12 months or only have 1 years accounting for your self-employed income then there may still be options but lenders willing to offer a mortgage in this case will be more limited. 

How A Lender Assesses Self-Employed Earnings?

Self-employed individuals are either sole traders, members of a partnership or Directors of a limited company. Based on which of these categories you fall into, the mortgage lender will assess your application differently.

If you are a sole trader, it’s vital for you to provide evidence of your net income earned (usually over the latest 2 tax years). This income must be declared through the Self Assessment system of the HM Revenue And Customs, following which you will need an SA302 form. 

The form is a summary of your net income against the tax you have paid to date, and based on this information, the lender will assess whether you are fit for the mortgage or not.

Should you be a member of a partnership, you must present the individual profit share to the mortgage lender. This, along with the percentage share you own of the company, will form the basis for the loan amount.

Directors of a company will usually need to provide either their Tax Calculations with corresponding Tax Year Overviews or their Full Company Accounts.

As the director, your salary and dividend payments will be assessed by lenders upon your mortgage application. Some lenders may also be able to consider using other parts of your Self-Employed income such as your share of net profit or retained profits. 

Tips On Getting A Self-Employed Mortgage

While getting a self-employed mortgage is difficult, there are a few steps you can take to improve your chances.

These steps must be taken well before you apply for a mortgage, so be sure to spare no effort while preparing to do so.

Here are five tips that you can use to improve your chances of getting a self-employed mortgage.

1. Hire A Certified Accountant

Certified accountants can be indispensable for getting your finances in order for any mortgage, not just self-employed ones.

In fact, they are so important to lenders that some may not accept an application from an applicant without an accountant with certain qualifications.

However, it’s important to keep in mind that some accountants make efforts to minimise your declared income for tax benefits.

This can have an impact on your mortgage application as it may result in the accounts showing a lower profit amount and therefore reduce your affordability with lenders.

So always keep this in mind when you’re looking to purchase a property as a self employed individual. 

2. Submit Your Self-Assessment Tax Returns

Typically lenders will need to see your SA302 Calculations & Corresponding Tax Year Overviews for the latest 2 tax years in order to consider your application and make an assessment on your eligibility for a mortgage. 

3. Build a Deposit

What is Mortgage Deposit

Having a larger deposit can improve your chances of getting a mortgage at a reasonable rate, especially as a self-employed individual.

Typically, lenders require self-employed borrowers to pay at least 10% of the property value as a deposit although some lenders may be able to consider a 5% deposit. 

This percentage can vary based on multiple factors such as credit history, length of time self-employed etc. 

4. Keep Your Finances Clear

Getting your finances in order is an important step to getting a mortgage as a self-employed individual. Not only does this keep your accounts easy to manage, but it also helps improve your credit score.

Start by clearing any leftover debts, closing inactive accounts and ensuring all of your information has been reported correctly on your credit file. Making yourself visible on the electoral roll is also a good step in the process.

5. Consult A Mortgage Broker

To maximise your chances of being accepted by a lender, consider approaching a mortgage broker who can assess your individual circumstances and find a suitable lender for you.

The broker will be able to provide you with an accurate assessment of your financial situation while aiding you with the mortgage process and taking the stress away from you. 

FAQ

1. How long should I be self-employed to qualify for a self-employed mortgage?

Most lenders require you to be self-employed for at least two years in the same industry although some may be able to consider your application with one year’s self-employed history. As such, keeping good records of work history is paramount when applying for a mortgage.

2. What are the best ways to find good mortgage deals for self-employed people?

Do your research and consider speaking to a mortgage advisor who can look at your individual circumstances and find the best deal available to you. 

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

All content is written by qualified mortgage advisors to provide current, reliable and accurate mortgage information. The information on this website is not specific for each individual reader and therefore does not constitute financial advice.

CeMAP & CERER Qualified Mortgage Adviser

I am CeMAP & CERER qualified mortgage adviser and have helped a number of clients realise their dreams when they thought it would not be possible. I’m skilled at getting mortgages sorted for people with a history of missed payments, CCJs, defaults, debt management programmes, IVAs and bankruptcies.

Mortgage & Protection Advisor | 03337892035

I am CeMAP (Certificate in Mortgage Advice and Practice) qualified mortgage adviser with a strong background in Finance. I specialise in providing expert advice on a range of mortgage products, including first-time buyers, remortgages, buy-to-let mortgages and bad credit mortgages.

Related Articles

Leave a Comment

LendingLine Logo White 2

Get Your Free
Mortgage Quote

LendingLine is a mortgage information service and not a mortgage brokerage. We work by connecting you with an independent and specialised mortgage advisor who best fits your individual needs and requirements. By submitting the above information, you consent to a regulated broker calling you to discuss your mortgage situation.

Your Submission is Successful

Thank you for submitting your information. An advisor will be in touch with you by phone in the next 24/48 hours. If they can't get hold of you, they will try emailing. Please therefore look out for any calls/emails.

You can also chat with our mortgage advisors via WhatsApp.