Everything you need to know about being Self-Employed and Mortgages

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.

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We match you to a specialist mortgage broker.

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.

How do they work?

The way income is assessed during the application process is what sets self-employed mortgages apart from other types of residential home loans. Rather than 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, using a whole-of-market broker is highly recommended. A broker can make sure you’re paired up with the lender who’s best positioned to offer the top rates.

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% 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.
  • 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.

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. Even then, your choice of lenders will be fewer than somebody with two to three years of accounts.

How can I 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.

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.

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 may 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.

Speak to a specialist

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 can introduce you to specialists 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.

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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 brokers we introduce you to, 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 brokers we introduce you to 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.