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Getting a mortgage when self-employed

Getting a mortgage when you’re self-employed can be harder than when you have a fixed income. This is because it’s often more difficult for the provider to assess whether you can afford the monthly repayments. However, you should be able to get a mortgage if you fit the lender’s criteria.

5 min read
self employed couple looking at laptop

What qualifies as self-employed? 

You’re considered self-employed if you are one of the below:

  • a sole trader
  • in a business partnership
  • an owner or co-owner of a limited company

Which category you fall into affects how the lender will assess your eligibility for a mortgage. We suggest you speak to your accountant to help you gather the correct paperwork together to support your mortgage application.

Here are some examples of what lenders make look for in each case:

1. Sole trader

If you’re a sole trader, the mortgage provider will need to see proof of your income, such as self-assessment tax forms and an SA302 form, which detail your total income and how much tax you’ve paid.

2. Business partnership

If you’re in a business partnership, your mortgage lender will look at your individual share of the profits, not the overall company profits. So, you’ll need to provide proof of how much your share is.

3. Own or co-own a limited company

Your personal accounts will be separate from your business accounts if you run a limited company. So, the lender will usually look at your salary and dividend payments - but won’t usually take into consideration any profits that are retained by the business.

Ultimately, the mortgage provider will want to see that you have a steady income, so that they know you can afford the mortgage - both now and in the future.

Is a self-employed mortgage the same as a standard mortgage? 

Yes, they are the same. This means self-employed people can apply for a standard mortgage. The only difference is they may find it more difficult to prove their income and get approved, due to tight lending criteria.

Tip: There are specialist mortgage advisers and brokers who can help you to process your application and find you the most suitable mortgage for your specific circumstances.

Self-employed mortgage requirements  

Each mortgage provider uses their own lending criteria, but they tend to require:   

  • you to have been trading for a minimum of three years
  • a good credit score and credit history to show you are a reliable borrower
  • two years’ worth of self-assessment tax returns or accounts
  • an SA302 form or tax year overview from HMRC that covers the last two or three years, depending on the mortgage provider
  • evidence of upcoming employment if you’re a contractor
  • evidence of dividend payments or retained profits if you’re a company director

How to get a mortgage when self-employed  

We know it can be more difficult to get a mortgage when self-employed. But don’t worry, it is still possible. To improve your chances of getting approved, follow these ten tips:

1. Use an accountant 

Using an accountant can boost your chances of being accepted and it’ll take some of the pressure off you to get the correct paperwork together. Mortgage providers prefer accounts that have been prepared by a chartered accountant because they consider them to be more reliable.

2. Provide proof of income 

Work together with your accountant to get the required documentation together (as mentioned above). The more organised you are, the more likely you’ll get your mortgage application through quickly and without any hiccups.

3. Save a substantial deposit 

If you save a large deposit you’re more likely to be accepted for a mortgage and at a better rate. This is because you’re at less risk of going into negative equity (i.e. owing more than the house is worth if house prices drop). Plus, it shows lenders that you’re able to manage your finances well.

Many mortgage providers will ask for at least a 10-15% deposit. The more you save the easier you’ll find it to get accepted.

Read on for tips on how to save a house deposit.

4. Always pay your bills on time 

Mortgage providers check your credit report to decide how much of a risk it would be to lend to you, based on your credit history. You can improve your credit score by always paying your rent and bills on time. This shows lenders that you are a reliable borrower.

Plus, it helps you to avoid negative markers like missed payments and defaults from appearing on your report.

Discover more things you can do to boost your score.

5. Reduce non-essential outgoings  

When you apply for a mortgage the lender considers your income and outgoings to see whether you can afford mortgage repayments. Reducing your non-essential outgoings can increase the amount of spare cash you have available once all the bills have been paid. Doing so should improve your affordability, and in turn, your chances of approval.

6. Reduce debts 

Likewise, having outstanding debts means you could appear as risky to lend to. Your income needs to cover other both these debts and your mortgage on top. Lenders might not think you can afford to add a mortgage to the mix. Reducing your other debts shows you:

  • can make repayments on time and in full
  • are responsible with money that you’ve borrower
  • can afford to take on new repayments

7. Make sure your credit report is accurate 

Mistakes on your credit report, like an inaccurate address or an unused bank account, can show as red flags to lenders. So, if you notice an error, ask the credit reference agency involved to fix it as soon as possible.

8. Join the electoral roll 

An easy thing to do to boost your credit score and make it easier for you to get accepted for a mortgage is to join the electoral roll. It’s a simple step that involves registering your address with the government so you can vote.

9. Speak to a mortgage adviser 

A mortgage adviser can support you during the mortgage application process. They’ll give you advice on how to maximise your chances of getting accepted.

You could also consider using a broker, who will look through their portfolio of lenders to find a mortgage option that suits you. However, bear in mind that some brokers have a limited number of companies on their books – so you may want to compare their options with other lenders on the market.

10. Consider specialist self-employed mortgage lenders 

If you’re self-employed and struggling to get approved for a mortgage, consider using a specialist self-employed mortgage lender. They might be able to offer you a mortgage if traditional banks and building societies turn you down.

Just be aware that these companies usually offer higher interest rates, so it’s best to do your research first.

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