Being self-employed should not prevent you from securing a mortgage, though it may sometimes add complexity to the process. Fortunately, if you work for yourself and are seeking home financing, you’re in the right place. This guide will outline the available options, the potential amount you could borrow, and how to identify the best mortgage deals tailored for self-employed individuals.
Can you get a mortgage if you’re self-employed?
Yes. No mortgage lender will reject your application solely because you are self-employed, but it can sometimes be more challenging to obtain approval if this is how you trade. For instance, if you have been self-employed for less than two years or your income has varied, the number of lenders willing to consider your application may be limited.
As a self-employed individual, the mortgage products you will apply for are the same as those available to everyone else. While there is no specific product called a 'self-employed mortgage,' some lenders are more experienced in addressing the needs of self-employed applicants.
There are a few key differences in how your mortgage application will be evaluated:
- Affordability will be determined based on your average earnings over a 2-3 year period
- The method for proving your income will differ
- Some eligibility criteria may vary
Given the additional steps often required for self-employed applicants, consulting a mortgage broker before applying for home financing is advisable.
Requirements for self-employed applicants
As a self-employed mortgage applicant, most lenders will require you to meet the following criteria:
- Trading history: Typically, lenders expect you to have been trading in your current capacity for at least 2-3 years before considering you for a mortgage.
- Income stability: If your financial accounts show declining profits or a loss in the most recent year, some lenders may hesitate to offer you a mortgage.
- Proof of income: You will need at least two years of accounts to verify your income, along with SA302 forms or a tax year overview from HMRC covering the last 2-3 years. If you are a contractor, lenders may ask for evidence of upcoming contracts or review dividend payments and retained profits if you are a company director.
Other requirements for self-employed mortgage applicants are typically the same as those for individuals in full-time employment. Continue reading for further details on these criteria.
How much deposit you will need
The deposit requirements for self-employed mortgages are the same as for any other applicant. You may be approved with a deposit of 5-10% of the property's value, though putting down a larger deposit could help you secure a more favourable interest rate.
Other requirements
Whether you are employed or self-employed, lenders will also consider the following factors when evaluating your mortgage eligibility:
- Credit history: A strong credit history will improve your chances of approval. While poor credit can complicate the process, approval may still be possible depending on the nature, severity, and age of the credit issue, as well as the reason behind it.
- Age: Some lenders may not offer you a mortgage if you will be between 75 and 85 years old during the mortgage term, but there are specialist lenders that cater to older borrowers.
- Property type: Unusual or non-standard properties, such as those not constructed from traditional bricks and mortar, may require a specialist lender.
How your maximum borrowing will be calculated
Most mortgage lenders will assess your declarable income from the past 2-3 years and calculate an average. This figure is then typically multiplied by 4 or 4.5 to determine the maximum amount you can borrow. However, some lenders may use a higher income multiple, up to 5.5-6 times your income, in certain situations.
What qualifies as ‘declarable income’ depends on your trading structure. The table below outlines the types of income that lenders generally consider acceptable for each trading style:
|
Trading Style |
Declarable Income |
|
Sole trader |
Net profits (if based on accounts) or Total income received (SA302s) |
|
Partnership |
Borrowers share of net profit (accounts) or share of total income received (SA302s) |
|
Limited company director |
Share of director’s salary, share of dividends, or net profit if there has been a large business expense or a sum earned that was retained in the business |
Alongside your primary income, some lenders may allow you to declare additional sources, such as bonuses, benefits, or investment income. Including these can increase your borrowing potential, although not all lenders will accept 100% of supplemental income when calculating your affordability.
What if you have been trading for a year or less?
It is still possible to secure a mortgage if you are self-employed with only one year of accounts, though your options for lenders, rates, and deals will be significantly more limited. Most lenders prefer at least 2-3 years of trading history.
If you have only been trading for a year, the lender willing to accept this will assess affordability based on a multiple of your income from that 12-month period.
The table below provides an estimate of how many mortgage lenders you may be able to approach depending on the length of time you have been self-employed:
|
Length of Time Self-Employed |
Approx. Number of Available Lenders |
|
Less than 1 year |
None - seek professional advice |
|
1 year |
24 |
|
2 years |
68 |
|
3 years |
79 |
Those who have been trading for less than a year will face more challenges in securing a mortgage, as no lenders will allow you to complete the process until you have passed the one-year trading milestone. However, a few providers may be willing to start an application around the nine-month mark, with the intention of completing it once the full year has been reached.
If you are self-employed with less than two years of accounts, it is essential to consult a mortgage broker. Their expertise and connections with lenders can help you find a suitable solution. You should also seek professional advice if any of the following apply:
- You have declining profits
- You recorded a loss in your most recent year
- Your income comes from non-standard sources, such as overseas payments
- You wish to borrow based on retained company profits.
How to get a mortgage if you’re self-employed
Follow the steps below to get your mortgage application off to the best possible start:
Prepare your documents: You will need to provide as much certified accounting information as possible (ideally covering three years) or an SA302 tax document. Additionally, you will need to supply proof of address, proof of ID, and three months' bank statements.
Download your credit reports: You can obtain these by signing up for a free trial on Checkmyfile. Ensure your credit files are accurate and up to date. If any discrepancies are found, report them to the credit reference agencies, as improving your credit report could help you secure a better mortgage deal.
Speak to a broker: After gathering your documents, speak to a mortgage broker. Here you can consult with one who specialises in self-employed clients. They will review your situation to assist you in securing the best possible deal.
Are mortgage rates higher for self-employed borrowers?
No, mortgage interest rates are not influenced by your employment status. The rate you receive will depend on factors such as your deposit amount, credit history, and the type of mortgage you select. However, being self-employed can indirectly impact the rates available to you.
If there are risks associated with your employment history—such as a limited trading period, declining profits, or a loss in the previous year—the pool of lenders and deals will be smaller, making it harder to access the most competitive rates.
This is why working with a mortgage broker is advisable in these situations, as they can connect you with a broader range of lenders who specialise in self-employed applicants.
Who are the best mortgage lenders for self-employed applicants?
Most UK mortgage providers are willing to lend to self-employed individuals, but the number of available lenders decreases if you have less than two years of accounts or unstable income.
Certain lenders are more flexible when offering mortgages to self-employed borrowers, particularly those specialising in applicants with complex or limited income proof. Below are some examples of such lenders:
- Aldermore: May lend to self-employed applicants with just one year of accounts but will conduct additional checks to ensure employment stability and confirm no adverse credit over the past three years.
- Halifax: Prefers two years of trading but may consider lending to those with only one year. Halifax’s preferred method of income verification is accounts, though they may request further details in these cases.
- Barclays: Allows limited company directors to borrow based on retained profits, but the declared amount cannot exceed five times the average salary plus dividends received over the last two years, as shown in the applicant's most recent tax returns.
- Bluestone: Will lend to applicants with declining profits if there is a reasonable explanation for the decline and future income is deemed sustainable.
These examples represent a small selection of the market.
Can you get a buy-to-let mortgage if you’re self-employed?
Yes, the primary difference with a buy-to-let mortgage is that affordability is based on the rental income the property can generate. Most buy-to-let lenders require the projected rental income to be 125-145% of the monthly mortgage payments to approve your application.
Your self-employed status may only complicate matters if the lender chooses to assess your personal income as well. Some buy-to-let lenders may expect you to have a personal income of at least £25,000 per year in addition to the rental income.
Your application is likely to be more favourably considered if you are an experienced landlord or have a proven track record in the property industry. This experience can reassure lenders of your ability to manage the property and rental income effectively.
Can you get approved with bad credit?
Yes, but it will depend on the nature of your bad credit. Minor issues, such as late payments, are generally easier for mortgage lenders to accept compared to more serious problems, like bankruptcies. Lenders are also more lenient if your bad credit occurred 3-6 years ago.
It can be more challenging to secure a mortgage with severe or recent bad credit, particularly if there are other risk factors related to your employment. For instance, if you have only one year of accounts and a history of adverse credit, you may be restricted to specialist lenders, as you fall into two niche categories.
This could result in being offered a mortgage at a higher interest rate or with a larger deposit requirement. To improve your chances of approval and obtaining a favourable rate, it is advisable to consult a mortgage broker before applying.
Frequently Asked Questions
If you have become self-employed since taking out your original mortgage, the remortgaging process may take a little longer. A major change in your circumstances requires the lender to reassess your affordability from the beginning.
You should expect the lender to conduct all the same checks they would if you were purchasing a property with self-employed income.
To save time on your application, it's beneficial to consult a mortgage broker. They can assist with the paperwork and help you find the most suitable lender for your remortgage.