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Self Employed Mortgages – How Much Can You Borrow?

Self-employed and want to know how large a mortgage you can get? Find out here.

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By Pete Mugleston   Mortgage Advisor

Last updated: 8th February 2019 *

If I want a self-employed mortgage, how much can I borrow?

We are often approached by many self-employed borrowers who have been told by a lender or broker they can’t borrow what they want, for a number of different reasons.

Without the security of a permanent job and a fixed income, it can be difficult to persuade mortgage lenders to part with their cash.

Thankfully every lender has a different policy, as well as some being more generous with their figures than others and the expert advisors we work with know who they are.

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

If you’re self-employed the task is to convince banks and building societies that you are a safe bet and will be able to pay back the loan. The days of self-certified mortgages are gone now.

These challenges are harder to overcome if you have only been running your own business for a short time, or you are a contractor with on a fixed term.

How much you can borrow depends on the lender, as they are all different and have different lending criteria.

Most lenders will offer 3x income, others more generous offering 4x, and a few will consider 5x. At the time of writing there are actually a handful of specialist lenders who will offer up to 6x income in certain circumstances.

Self-employed mortgage calculator - how much can I borrow?

A calculator would be almost impossible to devise, because every lender is different with different criteria, not to mention everyone has different 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.

What sort of businesses are eligible for a self-employed mortgage?

The key factor for you as a self-employed person will be how the mortgage provider assesses your income. A big part of this process will be whether you are registered as:

  • A sole trader
  • Partner
  • Company director
  • Contractor
  • Umbrella company

How can I get a self-employed mortgage as a Sole Trader?

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 3 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.

While it’s not It’s not 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.

How can I get a mortgage as a Company Director?

Limited company directors 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 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 the how differences lending policy can significant 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 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?

Mortgages for contractors in the UK 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.

Self employed mortgages – FAQ’s

We get calls every day from self-employed people trying to get a mortgage, happily we are able to help most of them with the right advice. Here, are some of the most commonly asked questions:

The main questions we will cover are:

  • What deposit do I need?
  • Mortgage affordability for the self-employed
  • Can I get a mortgage with credit issues?
  • Can I get a mortgage on a unique property?
  • Can I get a mortgage into retirement / later life?
  • Are things the same with Buy to Let?
  • What about second homes?
  • If capital raising, consider a secured loan
  • Are rules the same for big mortgages?
  • What deposit do I need?

As with any mortgage a good deposit will boost your chances of getting the loan, and with the self-employed this becomes even more true. It is very unlikely you will get a 95% mortgage, which is possible for people in permanent jobs, so be prepared to have a sizeable deposit as part of your application.

The lender will assess whether you can afford to meet the repayments.

If you have a good business with a healthy customer list and established income, there is no reason why your application should be treated any differently to someone in employment with a similar income. You should be able to secure the same interest rate as well.

Can I get a mortgage with credit issues?

Problems with repaying credit can affect a person’s ability to secure a mortgage, and it is no different for self-employed applicants. These factors will become more important if the application has other constraints such as only one year’s accounts. Having more than one credit issue can also affect the application, and make it more difficult but not usually impossible.

A low credit score means many lenders will decline an application, unless they look at the issues involved rather than just the score.

For late payments, there is not usually an issue if they were more than three years ago, and some will accept it if they were in the last 12 months or even if currently behind. Delayed mortgage payments are looked at in a similar way although they are generally considered to be more serious.

Defaults registered within the last six years will rule out most lenders, but some will disregard any more than three years ago, and a handful will even accept a registration in the last month.

Any county court judgements will be considered in the same way as defaults, although some lenders consider them more serious.

Applicants with Debt Management Plans (DMPs) registered in the last six years will usually be refused, but some lenders will consider three years and others even current DMPs. Individual Voluntary Arrangements (IVAs) are treated in the same way depending on when the settlement date was.

A credit history that includes bankruptcy or repossession usually rules someone out of a mortgage, although some look at how long ago it was discharged or executed.

Can I get a mortgage on a unique property?

Features of the property such as listed, high rise, ex-local authority, uninhabitable and non-standard construction eg concrete or timber frame, can all make it more difficult to get a mortgage. A larger deposit may be needed, and the interest rate offered might be less competitive.

Can I get a mortgage into retirement / later life?

It’s not as difficult as it once was with specialist lenders now offering mortgages to older people, although most will not consider anyone over 80 at the time of starting the mortgage. Equity release to generate some capital is often an option for over-55s.

Are things the same with Buy to Let?

The rules for Buy to Let mortgages are tighter with a higher loan to value ratio, and higher income requirements. The fees and interest rates are normally higher than regular mortgages, and a larger deposit (minimum 25%) will be required. Rent received usually has to be 25-30% above the monthly mortgage payment. An extra 3% in stamp duty is due on Buy to Let purchases.

What about second homes?

All the criteria used in mortgage applications become tighter for a second home application. Loan to value rates will be higher as will income requirements. Credit problems will be treated more strictly as well. Second homes are also subject to 3% extra in stamp duty.

If capital raising, consider a secured loan

If the purpose of the mortgage is to raise capital then a secured loan/second mortgage/homeowner loan may be preferable to a mortgage. Some of the criteria used for secured loans can be more flexible than for a mortgage.

You can usually borrow up to £100,000 with a secured loan, over 15-20 years. There are penalties for early repayment with these loans. The rates are usually better than for personal loans, but your home could be at risk if you default.

Are rules the same for big mortgages?

The rules are essentially the same for larger amounts, although lenders require enhanced evidence of ability to pay with higher income, and viability of business if self-employed.

The importance of getting the right advice from a specialist advisor

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 0800 304 7880 or make an enquiry here. 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: 8th February 2019
OnlineMortgageAdvisor 2019 ©

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 info 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.