The requirements for a self-employed mortgage are as follows…
- Proof of income:
Most lenders will want you to produce two or three years of accounts, but there are providers out there who will consider self-employed mortgage applications based on 1 year’s accounts or less.
- Deposit requirements:
Deposit requirements for self-employed mortgages are usually no different from other types of residential agreement. Most lenders will expect you to put down at least 10%, but this could rise depending on the level of risk. For instance, if you only have one year’s trading history, the lender might ask for 15% deposit to offset the risk. Low deposit deals could also be available, usually through flexible lenders or schemes such as Help to Buy.
- Credit history:
Self-employed customers with bad credit might find it more difficult to secure the mortgage they’re looking for. This is because some mortgage lenders will turn you away outright if you’ve had credit problems, but with the help of a whole-of-market broker, it’s possible to find lenders who will accept a self-employed customer for a bad credit mortgage and the broker will make sure no unnecessary credit checks are completed for a mortgage.
- Age limits:
You will find that some providers impose age restrictions on their self-employed mortgage products. Most will be wary if the term of the mortgage extends beyond your 75th birthday, but some will lend to customers aged 85 and a minority have no age limits at all.
How long do I need to have been self-employed for?
As far as most mortgage lenders are concerned, you will need to have been self-employed for at least two-to-three years and have accounts to prove that.
There are lenders who will consider your application after just nine-to-12 months, but you would usually need to evidence a strong track record in your industry and proof that your income is sustainable to get approved under these circumstances.
What if you don’t have any proof of income?
Residential mortgage lenders are highly regulated and therefore obliged to make sure you can afford to take on the debt you’re applying for, as evidenced by your proof of earnings.
The minimum amount of time you will need to produce accounts for is nine to 12 months. Even then, your choice of lenders will be fewer than somebody with two to three years of accounts.
The only type of self-employed mortgage product you’re likely to qualify for with no accounts is a second charge mortgage. This, of course, only applies to customers who already own a property and wish to borrow against the equity they hold in it.
Speak to a broker to find out whether other alternatives are available or see our guide to getting a self-employed mortgage with no accounts.
How can you get a self-employed mortgage with bad credit?
Applying for your mortgage through a whole-of-market broker is often the best route. Some mortgage lenders will decline you outright if you’re self-employed and have bad credit, while others may offer unfavourable rates. A broker with the right expertise can introduce you to the mortgage provider best positioned to offer a competitive deal to a customer with your credit history.
Specialist bad credit mortgage companies take a broader view of self-employed customers with bad credit and will base their decision on the age, severity and reason for the credit problem.
With the right advice, it may even be possible to get a self-employed mortgage with severe forms of adverse credit, such as bankruptcies and repossessions, as long as enough time has passed since these issues occurred and your financial conduct has been responsible since then.
The advisors we work with can even suggest ways to lower the risk posed by your credit history, such as producing at least three years’ of accounts and putting down an additional deposit.
What if you are newly self-employed?
It depends on how recently you became self-employed. In most cases, you will need to wait until you have between nine and 12 months of trading under your belt before applying for a mortgage, and even then your choice of lenders will be fewer than somebody with two or three years’ accounts.
It may help strengthen your application if you have a track record in the industry you’re freelancing in.
How much can you borrow?
The amount you can borrow for a self-employed mortgage will be based on a multiple of your average earnings over a set period. Some banks and building societies will ask for three years’ accounts, others will be happy with two and a minority will base their calculation on nine to 12 months of trading.
How are self-employed mortgages calculated?
Not all mortgage providers use the same calculations. Most will multiply your average earnings by 4.5, some will stretch to x5 and a minority will go as high as x6, under the right circumstances.
Let’s say you’ve been earning an average of £30,000 from freelancing over the last three years and can evidence that income with accounts. Most mortgage providers would cap their lending at £135,000, some would go up to £150,000 and a minority £180,000.
That said, using a whole-of-market broker could help you maximise your borrowing potential. Perhaps you’ve just had a really strong 12 months of trading but your average income over the last three years is lower when the previous two are factored in. A broker could help you find a lender who offers mortgages based on only one year’s accounts, potentially allowing you to take out a bigger mortgage.
It’s also worth noting that what is classed as declarable income can vary from one mortgage lender to another. Some providers won’t accept bonuses or commission, for example, while others will let you bulk up your average wage by including varying percentages of supplemental earnings.
What qualifies as self-employment income?
The type of income you can declare for a self-employed mortgage will vary from one lender to the next and can also depend on how you trade. For instance, the type of income a sole trader can declare on their application will differ to somebody who is looking for a company director mortgage.
Here is a breakdown of trading styles and the type of income lenders may accept…
- Net profit (if using accounts)
- Total income received (if using SA302s)
- Your share of net profit (if using accounts)
- Your share of total income received (if using SA302s)
- Your share of director’s salary
- Your share of dividends
- Occasionally lenders can consider net profit if there has been a large business expense or a sum earned that was left in the business and not withdrawn
Supplemental income lenders might accept
Some lenders will also accept self-employed professionals to declare the following with their main wages and take it into account for affordability:
- Investment income
- Rental income
- Trust income
- Capital earned overseas
- Capital earned in a foreign currency
- A mortgage with stipend income
- Personal, workplace and state pensions
- State benefits
Got a question about self-employed mortgages that we haven’t covered so far? Take a look through or FAQ section below to see whether its has the information you need.
How do I prove my income?
Self-employed professionals can prove their income for a mortgage by providing the lender with SA302 self-assessment tax returns, finalised accounts or projected accounts. As previously mentioned, these would typically need to cover a two-to-three-year period, but there are mortgage providers who are happy to base your application on 12 months’ accounts or less.
More flexible lenders may also accept payslips from your own company/family company or handwritten payslips if you are paid in cash.
Some mortgage providers may also ask you to produce P60s, employer references and benefit/pension statements to verify your earnings during the application process.
How do I get the best rates?
To get the best rates on a self-employed mortgage, save up as much deposit as possible, make sure your credit report is in good shape and collect three years’ of accounts. While there are providers who will lend to customers without all these things, the more boxes you can tick, the more lenders you’ll have to choose from.
A broker can help you optimise your credit report for a mortgage application. They can advise you on how long you’ll need to wait for a specific credit issue to run its course and suggest ways to build your credit score through responsible borrowing (though keep in mind that not all mortgage lenders use credit ‘scores’).
You can read more on this in our guide to building and repairing your credit rating.
On the subject of brokers, they’re the key to getting the best rates on a self-employed mortgage. The experts we work with are whole-of-market brokers, so applying through them will ensure you have access to all of the best deals that you qualify for; giving you bespoke advice throughout.
Speak to a broker who specialises in self-employed mortgages
If you’re self-employed and looking for a mortgage, it’s important that you get the right advice, and that means finding a broker who specialises in customers who trade the same way you do.
The good news is that we work with experts who know exactly which lenders are best positioned to offer favourable rates on self-employed mortgages, and we’ll introduce you to them for free.
Call 0808 189 2301 or make an enquiry and we’ll match you with a whole-of-market broker who could save you, time, money and potential disappointment in the long run.