Self-employed mortgages

Being self-employed shouldn’t stop you from getting a mortgage. Although mortgage assessments are slightly more complicated, you’ll need to be trading for at least one year to be eligible for a mortgage. Lenders will require documents such as your accounts and tax returns, which we’ll cover in detail in this guide.

Can I get a self-employed mortgage?

There isn’t a self-employed mortgage product. The same mortgages are available to you whether you’re employed or self-employed. However, there are differences in how mortgage lenders assess self-employed applicants.

Proving your income is your biggest asset when applying for a mortgage, as income from self-employment is considered high risk. Lenders need to be sure your income is sustainable to pay a mortgage for you to be approved.

What will I need for a self-employed mortgage?

You’ll need to provide the usual documents for a mortgage, such as bank statements, proof of address and proof of identity. A passport, utility bill and a bank statement showing your deposit are usually enough. But, as you’re self-employed, you’ll also need to provide the following:

  • Company accounts – Most lenders require at least two years of company accounts for a mortgage, with fewer accepting accounts for just one year. Three years of accounts will give you access to almost every lender, and it helps to have your accounts verified by an accountant.
  • SA302 or tax year overview – If you file a self-assessment instead of company accounts, lenders will require your SA302 documents. An SA302 shows your income for the year and the tax you paid.

How do mortgage lenders assess self-employed applicants?

Lenders assess self-employed applicants based on their trading model. For instance, sole traders and directors will require different affordability checks.

Director of a limited company

For directors, lenders calculate affordability by using a director’s salary and dividends, depending on how you take income from your business.

Lenders can also assess your company’s net profit to borrow more than your dividends allow.

Learn more: How to get a mortgage as a company director

Important: This is not the same as having a limited company for a buy-to-let portfolio. If you’re a portfolio landlord with a limited company, please read our article on how to apply for a mortgage with a limited company.

Applying as a business partner

Profits are usually shared if you’re in a partnership with someone else, so lenders will use your share of company profits to assess your income.

Lenders may ask to see evidence of your shareholding in the company.

You can read more about limited liability partnership mortgages if you’re part of an LLP.

Sole traders

For sole traders, lenders will assess your SA302 tax returns to calculate your affordability. Lenders will average your income across the latest 2-3 years, as each year will likely show a different income.

If you’re a contractor registered as a sole trader

You can download your SA302 forms from the HMRC self-assessment portal.

Learn more about sole trader mortgages here.

Contractors

If you’re working as a contractor, you’ll likely work as a sole trader, have a limited company or work under an umbrella company. However, you’ll need to provide evidence of future contracts and have minimal breaks between contracts to get a mortgage.

Read more about contractor mortgages.

How much can I borrow if I’m self-employed?

You can borrow between three and five times your share of net profit and income from salaries or dividends. Lenders will consider the following to assess your affordability:

  • Retained profit in a limited company
  • Dividends from a limited company
  • Declared income on SA302 documents
  • Annual salary from self-employment

Some lenders will base their calculations on your most recently declared income. Other lenders will determine your affordability on an average of your past two or three years’ accounts or SA302s.

How can self-employed applicants improve their mortgage application?

Being self-employed can make your mortgage trickier. But you can improve your mortgage chances by taking the following steps:

Save for a bigger deposit

Larger deposits will unlock the best deals and give you access to more lenders. Lenders sometimes view self-employed applicants as high-risk, so having a big deposit can ease concerns.

A 10% or less deposit can leave you with fewer lenders to choose from, not to mention higher interest rates.

Speak to an accountant

Whether you already have an accountant or not, verifying your accounts and SA302s is worth doing. Some lenders require accountants to sign off on accounts as part of their criteria, making your application smoother.

You’ll also want to inform your accountant that you intend to apply for a mortgage. Showing a higher income can allow you to borrow more, while minimising your earnings will restrict the amount you can borrow.

Gather your documents

Download your SA302 documents for the last three years and ensure you’ve filed your latest accounts. Having these documents to hand will save you a lot of time and give you an idea of the amount you can apply for.

You’ll also need to present your bank statements, so try to minimise your spending for at least three months before applying.

Check your credit rating

Checking your credit history before applying for a mortgage is always a good idea. Doing so will give you a headstart on correcting any potential errors on your credit file. You can also improve your credit score, which can help your mortgage and unlock better deals.

Keep a consistent business model

Lenders like to see consistency, and any changes in your business model will cause issues. For instance, if you want to change from a sole trader to a limited company, it’s better to do so once your mortgage is approved.

Lenders will only accept income from your currently registered business. Even if it’s the same business with a different model, you’ll be assessed on your accounts from your current business. You’ll also need at least two years of consistent accounts under the same trading style.

Self-employed mortgage FAQs

Most lenders will view you as self-employed if you own more than 20% of a business from which you earn your primary income.

You’ll also need to register as a limited company, sole trader or contractor and submit accounts to the HMRC.

Self-employed applicants have access to the same mortgage rates as everybody else. There are no special rates for the employed or self-employed.

You may have to pay higher rates if you apply with a small deposit or have a bad credit rating. Lenders charge higher rates to compensate for the risk attached to the mortgage. However, this has nothing to do with your employment status.

It’s not hard to get a mortgage if you’re self-employed, but you must prove you have a sustainable and consistent income. Being self-employed can sometimes result in irregular income, making a mortgage challenging.