Self-Employed Mortgages
It’s widely believed that it’s harder to get a mortgage if you are self-employed, and that’s understandable given the hesitance of some mainstream lenders. However, with knowledge of the market and a strong application, it needn’t be stressful. At Simmonds, we love helping self-employed clients get the mortgage they deserve. Read on to find out how we can help you.
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What is a self-employed mortgage?
Being self-employed doesn’t necessarily mean you need a specialist type of mortgage. You can usually apply for the same mortgage deals and interest rates as everyone else. The main difference is that lenders will assess your income differently and ask for additional evidence to show what you earn.
Some specialist lenders do offer mortgages aimed specifically at self-employed applicants with more flexible criteria. For example, they may be willing to use your latest year’s figures rather than averaging your income over two or three years. In some cases, the interest rate may also differ from a standard mortgage. For the majority of self-employed borrowers, though, there is still a wide choice of mainstream mortgage products available.
Often when self-employed people come to us, they are hesitant and nervous, with tales about how lenders have turned them down, or asked for a mountain of extra documents. But usually it’s just a case of approaching the wrong lenders. As long as you have the right paperwork and a decent credit score behind you, you can borrow just like an employed applicant.
Take the self-employed IT contractor we helped in Wokingham. He’d wasted months with a previous adviser and had already been declined by a high street lender, partly because of some bad credit and a variable income. We rebuilt his case using the contractor day-rate method, took it to a lender who welcomes complex self-employed applicants, and got it approved in record time. His monthly repayments dropped by more than £1,000. Read the full case study here.
Contact us today and let’s see what we can do for you.
What do lenders count as self-employment?
Most lenders will class you as self-employed if you:
Work as a sole trader
Work as a freelancer
Work as a contractor
Own 10 to 20% or more of a limited company that provides your main income
What are the requirements for a self-employed mortgage?
The lending criteria looks much like a standard mortgage. Lenders want to see that you earn a reliable income and can comfortably afford the monthly repayments.
The difference is that the self-employed mortgage application process is a little more involved. You’ll be asked for a little more evidence than an employed applicant, but as your mortgage broker, we can take that on for you to make the whole process manageable.
Typical criteria for a self-employed mortgage
Note that this varies from lender to lender, but typically, this is what you can expect:
The basics: On the electoral roll, valid ID and proof of address.
Trading history: Usually two to three years of accounts, though plenty of lenders will consider one year’s figures if the rest of your application is strong.
Proof of income: Tax calculations (SA302s) and matching HMRC tax year overviews, backed up by certified accounts from an accountant.
Business bank statements: Generally the last three to six months, so a lender can see money moving in and out.
A reliable, provable income: Sole traders are typically assessed using net profit. If you’re a limited company director, lenders may use your salary and dividends or your salary plus your share of the company’s pre- or post-corporation tax profits.
A healthy credit file: A good credit score and a clean, up-to-date credit report. The odd blip won’t necessarily hinder you, but it may narrow your selection of lenders.
A deposit: Typically at least 5 to 10%. Generally, the bigger deposit means access to better mortgage deals and rates.
Affordability: As part of their affordability checks, the lender will look at your income versus your outgoings and existing debts.
How do mortgage lenders assess self-employed income?
If you’re a sole trader, lenders usually use your net profit from accounts or tax returns. They most often consider the average over 2–3 years, though some may use your most recent year if it is more favourable.
If you’re a limited company director, lenders may use your salary plus dividends, but some also consider your salary plus your share of company profits (before or after corporation tax depending on the lender). This is helpful if you retain profits in the business rather than taking them as dividends.
What records do I need to provide?
We can help you complete your application, provided you can lay your hands on the following documents that lenders most often request:
Bank statements
A reference from a qualified accountant
Your self-assessment tax return, and SA302 or tax calculations
Your HMRC tax year overview
Signed contracts and day-rate evidence if you’re a contractor
Finalised, certified limited company accounts or sole trader accounts
How our process works:
- An informal chat: Get in touch for a free initial meeting with one of our advisers who knows the self-employed mortgage market inside-out.
Assessment of your circumstances: We look at your income, accounts, credit file and deposit to see exactly where you stand.
Agreement in principle: We can arrange an AIP so you can get house-hunting with confidence.
We search the market: We compare lenders who genuinely understand self-employed income.
Our recommendations: We explain your best options in plain English and answer every question.
The application process: We package and submit everything, then chase it for you.
Ongoing support: We’ll be your main point of contact, liaising with the lender, agents and solicitors, right up until you collect your keys.
Speak to a specialist self-employed mortgage broker
Applying for a mortgage when you’re self-employed really doesn’t have to be stressful.
If you’ve been turned down before, you only have one year’s accounts, or have suffered a credit issue in the past, it’s nothing we haven’t dealt with before.
We’ll get to know you, explain your options in plain English, and recommend the mortgage deals that genuinely fit your circumstances.
Give Simmonds Mortgage Services a call on 01184 693 037, or book a meeting online today.
Start your journey with a trusted mortgage broker today.
Frequently asked questions about self-employed mortgages
How many years do I need to be self-employed to get a mortgage?
The more accounts and tax returns you can show, the easier it is to reassure a lender you can afford the mortgage repayments. Typically, lenders like to see two to three years' trading, but there are lenders that will be happy with just 12 months' if the rest of your application is strong. This is where working with a specialist mortgage broker is valuable, as we know which lenders welcome newer businesses rather than turning them away on principle.
Can variable income be a problem when getting a mortgage?
Self-employed income is rarely neat and predictable, but it needn't stop you getting a mortgage. While some lenders might be uncomfortable, many will look past variable income to the bigger picture. The key is presenting your income clearly, whether that means averaging your net profit, using your latest year, or applying the day-rate method for contractors. If you successfully show the pattern behind the numbers, lenders feel more confident and variable income becomes far less of a hurdle.
How much can I borrow for a self-employed mortgage?
The amount you can borrow depends on your self-employed turnover, net profit and monthly living costs. Lending multiples are usually the same whether you're employed or self-employed. Sole traders are typically assessed on net profit, and limited company directors on salary and dividend payments. Some lenders will consider retained company profits, which is a real win, as it lets you keep money in the business and retain your borrowing power.
Will I pay higher interest rates?
You won't pay higher interest rates because you're self-employed. Meet a lender's affordability rules with a strong application, and you should have access to the same interest rates as an employed borrower.
Can I get a joint mortgage if I'm self-employed?
You can get a joint mortgage whether one or both of you are self-employed. Lenders will assess each person's income before adding it together to work out your overall affordability.
Looking for a different mortgage product? See our mortgage service for Houses in Multiple Occupation
Contact Us
Get in touch with us by calling 0118 469 3037 for a free chat about your specific circumstances. Let us help you secure your dream home.