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Are You Looking for a Self-Employed Mortgage?

Find the information you need to know about self-employed mortgages in our comprehensive guide.

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Many self-employed professionals wrongly believe that they will struggle to get a mortgage because of the way they trade. While it’s true that many mortgage lenders prefer customers to be in full-time employment, there are great deals for contractors, freelancers and business owners out there.

With the right advice, it’s absolutely possible to get a self-employed mortgage, even if you’ve been turned down by a lender in the past or have limited accounts.

Read on to find out more.


What is a self-employed mortgage?

A self-employed mortgage is a home loan for anyone who trades in a self-employed capacity, whether that’s freelancing, contract work, running your own business or any other variation of the trading style. They aren’t much different to regular mortgage products, but it’s important to keep in mind that some mortgage lenders specialise in self-employed customers, while others don’t.

The way income is assessed during the application process is what sets self-employed mortgages apart from other types of residential home loans. Rather using a straight income multiple, most providers will cap their lending based on your average earnings over the last two or three years.

Given that some mortgage lenders can be more generous and flexible towards self-employed customers, it’s recommended that you use a whole-of-market broker if you trade this way. A broker can make sure you’re paired up with the lender who’s best positioned to offer the top rates.

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Eligibility criteria

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 applications based on 12 months 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% 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 specialise in self-employed borrowers with credit issues.
  • 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.

Can I get a mortgage with no proof of income?

No. 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, and 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.

How can I get a self-employed mortgage with bad credit?

Your best bet is to apply for your mortgage through a whole-of-market broker. Some mortgage lenders will turn you away outright if you’re self-employed and have bad credit, while others may offer unfavourable rates. A broker with the right expertise, however, can introduce you to the mortgage provider who is best positioned to offer the best 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.

Can I get a mortgage if I’m 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 I 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 your income is 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 a company director.

Here is a breakdown of trading styles and the type of income lenders will accept…

Sole trader

  • Net profit (if using accounts)
  • Total income received (if using SA302s)

Partnership

  • Your share of net profit (if using accounts)
  • Your share of total income received (if using SA302s)

Limited company

  • 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 allow self-employed professionals to declare the following with their main wages…

  • Investments
  • Rental income
  • Trust income
  • Capital earned overseas
  • Capital earned in a foreign currency
  • Bursary
  • Stipend
  • Personal, workplace and state pensions
  • State benefits

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?

Getting the best rates on a self-employed mortgage is a case of saving up as much deposit as possible, making sure your credit report is in the best possible shape and amassing three years’ worth of accounts. While there are lenders for customers with smaller deposits, bad credit and less than three years’ accounts, ticking every box means the number of approachable lenders will be higher.

A broker can help you optimise your credit report for a mortgage application. They can advise you on how long you will 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 advisors we work with are whole-of-market, so applying through them will ensure you have access to all of the best deals that you qualify for. What’s more, they will give you bespoke advice throughout.

Make an enquiry with us and we’ll introduce to a mortgage broker who specialises in self-employed customers today.


Speak to an advisor

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.

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.