Self Employed Mortgages – How Much Can You Borrow?

Self-employed applicants may face strict eligibility criteria when applying for a mortgage with mainstream lenders that can affect the amount they can borrow. But there are plenty of lenders that specialise in self-employed mortgages and take a flexible approach to calculating borrowing capacity.

In this article, we’ll explain how to work out your maximum mortgage borrowing if you’re self-employed and how a mortgage broker can help you maximise this amount. To start off, use our calculator below to get a rough idea of your affordability.

How is self-employed income calculated for a mortgage?

The main difference between employed and self-employed mortgage applicants is that many lenders will apply the income multiple to an average of your earnings over 2-3 years, although the exact way your income is assessed will depend on what type of self-employed trader you are.

Lenders often provide self-employed individuals with mortgages up to 4.5x their annual income (up to 95% of the property’s value) based on 2-3 years of accounts or SA302s. With a substantial deposit, stable income, and strong credit, borrowers may qualify for up to 5x their income, subject to the lender’s criteria.

With that said, it’s not uncommon to find lenders prepared to offer 5 times your salary (and in some cases up to 6 times). However, some lenders set a maximum of 3.5 times the salary for self-employed applicants.

Sole traders and partnerships

Most lenders will calculate affordability based on your average net profit from your last three years of accounts using their own income multiple. If you have been trading for fewer than three years, your pool of lenders will be smaller but it is still perfectly plausible that you can get a mortgage.

For full details, read our guide to mortgages for sole traders and partnerships.

For affordability purposes, partnership  income is calculated in the same way as for sole traders (on average net profits), taking into consideration their percentage share of the business.

Limited company directors

Lots of lenders will only include salary and dividends in your affordability calculation, but some will also take into account any share of retained profits or pension contributions paid before tax.

You can find out more about mortgages for limited company directors in our guide.

Mortgage lenders for self-employed

The table below outlines some of the best rates currently available from mortgage lenders who can help self-employed applicants.

The rates quoted above were correct at the time of writing and are subject to change at any time at the lender’s discretion. Speaking to a mortgage broker is the best way to keep track of the rates available at any given time. 

Contractors

Some lenders are wary of contractors owing to the chances of experiencing periods without income. For this reason, some insist on 3 years of accounts as a minimum. In most cases, the more years worth of stable or increasing income you can prove, the more you will be able to borrow.

The length of your current contract, evidence of any upcoming contracts, and your industry experience can also play a part in determining how much you can borrow. Even those who are new to contracting can often find a provider willing to assess affordability based on their day rate if they meet the rest of the lending criteria.

Try our calculator below to get an idea of your maximum borrowing:

How to maximise your borrowing potential if you’re self-employed

Your maximum borrowing is based on an assessment of your income and outgoings. If you need to borrow more than the standard 4.5x salary on a mortgage, your best bet is to find a specialist lender who offers mortgages based on higher income multiples.

Below are some tips to help you stretch your maximum mortgage borrowing:

• Find the right mortgage broker: There are brokers who specialise in self-employed mortgages and they have deep working relationships with lenders who offer mortgages based on x5 salary and higher.
• Tidy up your finances: Think about getting rid of unnecessary subscription service, cutting back on takeaways and not using online gambling sites in the six months before you apply. Lenders won’t take a favourable view of these – particularly if it’s a close call.
• Keep away from payday loans and don’t max out your credit card: Both can be perceived as indicators that finances are tight and could affect your borrowing capacity.
• Consider business expenses: Legitimate business expenses can lower your profit margin and tax bill. But when it comes to your borrowing capacity, this can be detrimental. So think carefully before making any major purchases if you’re considering a mortgage application in the near future.

Make an enquiry and we will match you with a broker who specialises in self-employed mortgages.

How much can you borrow on a buy to let mortgage?

Being a landlord is a form of self-employment. And thankfully, lender appetite for buy to let mortgages is pretty high.

Affordability is calculated differently with buy to let. In most cases you will need to demonstrate that the rental income will cover at least 125% of the mortgage payments – and in some cases as much as 140%.

Try our calculator below to work out your maximum borrowing based on rental income as well as what your repayments could look like:

Get matched with a specialist self-employed mortgage broker

Getting approved for a mortgage as a self-employed person is all about finding the right lender to suit your circumstances. Going it alone and being rejected is more than just frustrating, it can also harm your credit file.

With our broker matching service, you can connect with a broker who specialises in securing mortgages for those in your situation, be that as a sole trader, partner, limited company director or contractor.

It only takes a couple of minutes for us to take some basic details and find your ideal broker. Call today on 0808 189 2301 or enquire online to arrange a free, no-obligation chat.