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By Pete Mugleston | Mortgage Advisor

Pete has been a mortgage advisor for over 10 years, and is regularly cited in both trade and national press.

Updated: 28th May 2021*

Affordability for self-employed mortgages isn’t always straightforward. Without the security of a permanent job and a fixed income, it can be difficult to persuade mortgage lenders to let you borrow the amount you need.

Thankfully every lender has a different policy. Some are more generous than others in terms of the income multiples they offer, and the expert advisors we work with know who they are.

In this guide, you’ll find the following topics covered…

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How much can I borrow for a mortgage if I’m self-employed?

If you are employed of self-employed and meet the mortgage lender’s criteria, you can usually borrow 4.5 times your annual income.

This is the maximum most mortgage lenders would let you borrow, although some will consider offering 5x your income, and there are even a handful of specialist lenders who will offer up to 6x income in the right circumstances.

What else do I need to know?

To get the mortgage offer that is right for you, it’s vitally important to find a lender who is best positioned to help self-employed borrowers. The way they will assess your income will be different compared to a customer who is in full-time employment.

Some lenders, for instance, will want you to be able to produce accounts covering a specific number of years while others may only allow you to declare a percentage of any bonuses or commission you might earn.

Read on for more about these factors or make an enquiry so one of the expert brokers we work with can discuss self-employment mortgages with you in more detail.

Should I use a self-employment mortgage calculator?

A calculator for this purpose would be almost impossible to devise, because every lender is different with their criteria, not to mention everyone has individual circumstances.

The best thing you can do is talk to one of the advisors we work with, they are experts at helping self-employed people get the right mortgage and will be able to give you the right advice on how much you could borrow.

Sole trader mortgage affordability

For a lender to establish a self-employed borrower’s annual income, a proven and well-documented history of trading is required.

Most lenders require three years trading history before they will consider the applicant’s income stable enough to lend on. Some are happy with 2 years, and others will accept sole-traders and partnerships a mortgage with 1 year self-employment income.

Regardless essential to have an accountant, you will need your self-assessment tax year overview, and SA302 documents – these outline the total annual turnover, expenses, and net income received.

Company director mortgage affordability

Limited company director mortgages are slightly different as they are typically registered as PAYE employees of the business, which then pays out the individuals’ tax-free allowance as a salary, and then any additional income paid as dividends from profits.

Most lenders will only consider salary plus dividends, however there are several that can consider the applicants‘ share of net profits if money is left in the business.

These could typically include:

  • Salary
  • Dividend
  • Share of net profit (retained profit)
  • Pension contribution
  • Car allowance

It is common for directors to have a private pension contributed to by the company before tax is paid, which could be taken as a salary should the director choose to do so – for this reason there are mortgage lenders willing to consider a pension contribution as a potential income and add this into the calculation when establishing the borrower’s income.

This is useful for borrowers looking to apply for the biggest mortgage possible based on their self-employed income.

Below is a working example of how different lending policies can significantly impact maximum loan sizes and affordability for Ltd company directors:

For this, the maximum loan could be very different lender to lender, as an example:

For a business that made 55k net profit, pensions of 3k and other allowances of 2k, and has taken 11.5k in salary and 30k of dividends.

Lender A Lender B Lender C
Lender Type A typical example of a mainstream mortgage lender A more flexible lender for self-employed borrowers A specialist self-employed lender
Income Considered Considers salary + dividend Considers salary + dividend + pension + allowances Considers share of net profit + pension + allowances
Income Calculation 11,500 + 30,000 = 41,500 11,500 + 30,000 + 3,000 + 2,000 = 46,500 55,000 + 3,000 + 2,000 = 60,000
Max Lending (@ 4x Income) £166,000 £186,000 £240,000
Max Lending (@5x Income) £207,500 £232,500 £300,000

As you can see, lending policy and affordability assessment can have a massive impact on an individual’s’ ability to borrow.

Sadly many people stop at lender A, then change their plans accordingly which can mean missing out on the dream home and settling for less, or perhaps even borrowing money from the bank of mum and dad, whereas had they spoken to a specialist and found lender C, they could well have been able to borrow almost double!

Can I use my contractor income for a mortgage?

Getting a mortgage as a contractor can be quite tricky. This is partly because lenders have different criteria on what defines a contractor, which in turn dictates how much mortgage a contractor can get.

Typically, you are either an employed person working on a fixed or short term contract (this often includes charity/government workers), or you are a self-employed person that works through one main company (This may include consultants,  tradesmen, designers, IT or marketing professionals etc).

Every lender is different and will have their own policy on who they will and won’t lend to; and it’s usually based on how long you’ve been contracting for, how long you’ve worked in that industry, if you’ve had your contracts renewed, how long you have left on your contracts etc.

There are specialist lenders who will consider applications from contractors, so a chat with one of the advisors we work with, who are experts in getting mortgages for contractors, may be well worthwhile.

Speak to an expert about self-employment mortgage affordability

It is really important to get advice from an expert mortgage broker who knows the market and can make the vital difference between having your application as a self-employed person accepted or refused.

We work with a team of specialist advisors who will be able to help you whatever your circumstances. We don’t charge a fee and there is absolutely no obligation or any marks on your credit rating.

Call Online Mortgage Advisor today on 0808 189 2301 or make an enquiry online. Then sit back and let us do all the hard work in finding the broker with the right expertise for your circumstances. We don’t charge a fee and there’s no obligation or marks on your credit rating.

Updated: 28th May 2021
OnlineMortgageAdvisor 2021 ©

FCA disclaimer

*Based on our research, the content contained in this article is accurate as of most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs. Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

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