Can I get a mortgage if I am self-employed?
It’s perfectly possible to get a mortgage if you are self-employed, but lenders typically have stricter requirements and eligibility checks. This is because you’re seen as riskier, largely because your income is expected to fluctuate.
Don’t worry though, there are plenty of things you can do to improve your chances. These include finding the right provider, building up a bigger deposit, and showing an expected stream of income in the future.
What is counted as self-employed?
Mortgage providers have slightly different rules when defining self-employment. Typically, you’ll be considered self-employed if you own a certain percentage of the business from which you get your main income.
This can vary from lender to lender, but often it’s around 25%. Barclays says it considers you as self-employed if you have more than a 20% share.
You don’t have to be a company director. You can count as self-employed if you are:
Now, let’s take a look at everything you need to know before buying your first property. Here’s what we’ll cover:
- A sole trader
- A partner or director in a limited company
- A contractor who has set up a limited company
- Is it Difficult to get a mortgage if you’re self-employed?
As with any kind of mortgage, you have to prove how much you earn, because lenders want to make sure you can afford the monthly payments. This is sometimes more difficult if you’re self-employed, but you should be able to if you can get the right paperwork together.
How to apply for a self-employed mortgage?
Compare the best mortgages for self-employed people and gather the evidence you need to prove you can repay the loan. You’re more likely to get a mortgage if you have:
- A healthy deposit
- A good credit rating
- Enough income to cover your repayments
Get help finding and applying for the right mortgage from an expert broker. You can improve your chances of success by:
- Always keeping your business paperwork, accounts and electronic records up to date
- Using an accountant if you need help organising your taxes
- Completing a self-assessment SA302 form to prove your income
How long you have been trading is important. You’ll have a better chance if you can wait until your business has existed for a couple of years before you apply, particularly if you can prove that your income is steady and business is thriving.
What will I need to provide for a self-employed mortgage?
You need to bring all the standard documents that anyone has to show when applying for a mortgage. These include:
- proof of identity
- proof of address for the last three years
- bank statements
- proof of income
Because you don’t have payslips like someone who works for an employer, mortgage lenders ask to see how much you’ve earned over the last two complete tax years.
Even if you pay yourself a wage from a limited company, you may also take dividends which count towards your income. You’ll need documentation to show what you have received.
Lenders may also ask you for additional documents, which will vary depending on your personal circumstances.
Documents you often need to provide include:
- your HMRC tax year overviews from the last two tax years. Or financial accounts produced by a qualified accountant
- documents that show your tax calculations from the last two tax years, such as SA302 calculations
- limited company trading accounts for the most recent tax year
- evidence of any upcoming contracts – especially if you’re a contractor or similar
- proof of dividend payments or retained profits
When lenders look at your bank statements, they may ask about regular outgoings, debts, childcare or maintenance payments, credit cards, loans, car financing and regular outgoings.
Can you get the same offers as people who are employed?
Your choice of mortgages may be more limited than someone who works for a company.
However, as long as you can prove affordability, you should be able to access the same offers as someone who earns an equivalent salary in full-time regular employment.
The size of your deposit is important, and the more you have, the better offers you’ll get. Your credit rating is critical too, so make sure it’s in good shape before you apply.
If you are struggling to find a deal with a high street bank or building society, you could look at specialist lenders. These often charge higher interest rates, so your monthly repayments will be more.
How is a self-employed mortgage calculated?
The amount you can borrow and the way it’s calculated depends on the lender, which is why it is important to shop around for the best deal.
Some lenders set the amount you can borrow based on your previous few years of income, whereas others calculate it based on only your previous year of trading.
They will also calculate your mortgage offer differently, depending on your legal status:
For sole traders and partnerships, lenders take net profits as income
For limited companies, lenders look at salary and dividends. In some cases, they look at the salary and net profit of the company.
Do I need a deposit to get a self-employed mortgage?
Yes, you usually need a deposit as a self-employed mortgage applicant. Often, lenders will want you to have a lower loan-to-value (LTV) than an employee. For instance, some will ask that you have at least 15% of the total property price saved up as a deposit.
Working out how much to lend on a self-employed mortgage.
Being self-employed can make it tricky to work out how much you can borrow. When deciding how much to lend to you, mortgage providers often find it difficult to work out your regular income.
For example, you might have quiet months or years, or periods when your business does better. This can affect the amount of money that a lender would offer you.
This is why they ask for at least two years’ worth of accounts, to build a picture of your income over a longer time. If your income has been stable, this can help. As can evidence of any future contracts or work.
Can I get a self-employed mortgage with a poor credit rating?
Mortgage lenders are wary of offering money to anyone with a poor credit rating because they are likely to be a higher risk. If you’ve missed debt repayments or mortgage payments in the past, lenders may be concerned about whether you’ll be able to pay back what’s owed on time.
If you have a poor credit rating, you might have to take out a mortgage with a higher rate of interest for the first few years. After you have paid off part of the loan, you may then be able to get a better deal.
Shop around and compare self-employed mortgage deals to find the right product for you. Speaking to a mortgage broker can also help you find the right offer and meet the requirements for a successful application before you apply.
Which lenders offer mortgages to self-employed people?
Most lenders are happy to give you a mortgage if you’re self-employed if:
you have been trading for at least three years
you have two years of accounts or self-assessment tax returns available
You may also be able to find a lender who will consider your self-employed mortgage application if you have one year of accounts plus a projection, but these are less common, so you will have less choice.
Some stricter lenders may want to see predictions about future clients and contracts to make sure you can afford your mortgage repayments