Being self-employed doesn’t mean you can’t get a mortgage – far from it – although it can make it more difficult to demonstrate that not only is your income high enough to buy a house when you’re self-employed, but that it’s also stable enough to support your repayments.

Working for yourself normally means you won’t have the usual payslips and P60s that employees do, so you might find you need a bit more paperwork to back up your mortgage application than you would if you worked for someone else.

We’ve put together this article to help answer any questions you might have about applying for a mortgage if you work for yourself. If you’re looking for information about owning a property as a business, check out our article Should I Own My Property Through a Limited Company or as a Sole Trader?

Are mortgages for self-employed people more expensive?

This is a really common worry, but mortgages for self-employed people are usually no more costly than they are for salaried employees. As long as you’re able to give enough evidence of your income to prove you can afford it, you should still be able to access a standard mortgage.

Generally speaking, the higher your income, the better your credit rating, and the bigger your deposit, the more likely you are to be accepted.

The mortgage market is very broad and there are often specialist lenders who will offer mortgages to people even if their financial history isn’t perfect. Some lenders also specialise in self-employed mortgage products, so it’s well worth doing your homework. You might also consider using a mortgage broker to help you navigate the mortgage market and find the best product for your needs.

How do lenders assess self-employed mortgage applications?

Banks and other mortgage lenders review mortgage applications by assessing how risky the applicant is as borrower. For self-employed people this usually means the lender will want to understand the business’s long-term prospects in order to see how stable your income is – and it’s your job to supply this information.

 
Any potential mortgage lender will look at how much the busy really makes, so they’ll be interested in the profits as well as your turnover figures.

If you’re the director of a company, then lenders will also want to look at the money you pay yourself out of the business – normally a combination of your director’s salary and dividends.

What if I’m employed and self-employed?

Whether your income is from freelance work, seasonal contracts, employment, or a combination of everything, it can still count towards your mortgage assessment. For most mortgage lenders though, the key to this is consistency.

You might find that some lenders will only consider self-employment income if it accounts for a particular proportion of your regular income – normally between 20% and 25% of your total income.

Just make sure you have a steady stream of work before you apply. If lenders believe your income is in decline or has patchy periods – even for reasons outside of your control – you may struggle to get a mortgage.
 

How do mortgage lenders assess affordability?

The whole ‘you can borrow three times your income’ thing no longer applies. The Mortgage Market Review (MMR) was launched back in 2014, putting pressure on lenders to check whether borrowers could not only afford their mortgage today, but in the future as well.

Nowadays it’s more about stress testing your income, so that lenders can be confident you’ll still be able to afford your mortgage when (if!) interest rates rise. Stress testing involves checking to see if you could still afford your mortgage payments if interest rates were to increase to 3% above the lender’s mortgage deal.

 
To help them understand what you’re spending, lenders will likely want to look through your bank statements and see what your outgoings are, especially in areas such as leisure, hobbies, and holidays.

They’ll also want to see how much debt you have and whether you’ve defaulted in the past. Although this can feel a bit intrusive, it does protect you too. After all, there’s no point in overstretching yourself financially if you can avoid it.

Will my business structure affect my mortgage application?

In theory it shouldn’t matter whether you’re a sole trader, a limited company, or something else. There are a few points to consider if you’re getting ready to apply for a mortgage though.

The main one being that a sole trader isn’t legally separate to their business like the owner of a limited company is. Why does it matter?

• Incorporating your business (setting it up as a limited company) makes it legally separate to you as an individual, so any personal assets you own (such as your newly mortgaged house) are safe from anyone the business owes money to
• A mortgage lender will very likely want to see accounts whatever business structure you use, but it can make things simpler if your business’ finances and personal finances are separate

What documents will I need for a self-employed mortgage application?

The onus is on you to prove that your income and outgoings are manageable for the foreseeable future. It’s possible you’ll need to provide, or at least outline, your business plan or financial forecast, because this will help the lender assess your future prospects.

The exact documents you need to provide vary slightly depending on the lender and the type of business you’re in. That said, some things – like proof of address and current ID – will always be required, no matter what. They’re pretty standard with all mortgage applications.

Freelancers and sole traders

As a sole trader you’ll simply keep any profits from the business, so depending on the individual lender, you’ll normally need to submit two or three years’ worth of:

• SA302 form which shows your tax calculation and tax year overview according to Self Assessment
• Certified accounts, undersigned by an accountant

These will need to be the most recent ones!

Limited company directors

If you’re a limited company director, the majority of lenders will work out your basic income by looking at your salary and dividends. Each lender’s rules are different, but generally you’ll need to provide the last two to three years of:

• Evidence showing your earnings from the business. For instance, an SA302 form showing your Self Assessment tax calculations, or payslips from the business if you only take a salary and not dividends.
• Finalised and certified accounts from your accountant
• Proof of ownership/directorship

Partnerships

If you’re a partner and own at least 25% of the business, most lenders will accept your partnership income when considering you for a mortgage. Bear in mind though that if you own less than 25% of the business, it’s usually not classed as self-employed income.

• Evidence showing your earnings from the business. For instance, an SA302 form showing your Self Assessment tax calculations.
• Finalised and certified accounts from your accountant
• Proof of what share of the profits you’re entitled to, such as a Partnership Agreement

Do my accounts have to be produced by an accountant?

Most mortgage lenders will want to see that your accounts have been put together and verified by a certified or chartered accountant, particularly if your finances are on the more complicated side. Even if your situation is pretty straight-forward, mortgage lenders can be a bit fussy about this point, so check what they’re after!

 
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