Can I get a mortgage if I am self-employed?
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?
- 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?
- 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?
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.
