Mortgages for the self-employed

There is a common worry that being self-employed makes getting a mortgage far harder. In reality there is no separate "self-employed mortgage" — you apply for the same mortgages as everyone else. The difference is simply in how a lender works out your income. Once you understand what they are looking for, and prepare the right paperwork, the process is very manageable. This guide explains how lenders assess self-employed income, what documents you need, and how to give yourself the best chance.

Who counts as self-employed

Lenders generally treat you as self-employed if you own a meaningful share of a business you earn your income from. That usually covers sole traders, partners in a partnership, and directors who hold a significant shareholding in their own limited company — commonly a stake of around 20% to 25% or more, though the exact threshold varies by lender. If that is you, your income is assessed from your business figures rather than from a monthly payslip.

How lenders assess self-employed income

An employed applicant can show recent payslips, but a self-employed applicant's income can vary year to year, so lenders look at your track record instead. Broadly, they will consider:

• Sole traders and partners: your net profit, usually taken from your Self Assessment tax calculations.
• Company directors: often a combination of salary and dividends drawn from the company, and in some cases a share of retained profit — lenders differ in how they treat this.

Most lenders average your income over the last two or three years to get a stable figure, and many will look closely if the most recent year is lower than the one before, as they tend to lend on the more cautious view. Because lenders vary so much in how they read these figures, two lenders can arrive at quite different borrowing amounts from exactly the same accounts.

The documents you will need

Getting your paperwork in order early makes everything smoother. Commonly requested items include:

• SA302 tax calculations (or the equivalent from your accounting software or accountant) for the last two to three years, showing the income you declared to HMRC.
• Tax year overviews from HMRC, which sit alongside the SA302s and confirm the tax position.
• Business or company accounts, often prepared or certified by a qualified or chartered accountant, especially for limited companies.
• Personal and sometimes business bank statements, typically covering the last few months.
• Standard proof of identity and address.

How long you need to have been trading

As a general rule, lenders like to see at least two to three years of trading history, because it gives them a track record to base the decision on. That said, it is not an absolute barrier if you have less. Some lenders will consider applicants with around one year of accounts, particularly where the income is strong, the sector is stable, or you moved into self-employment from a similar employed role. The choice of lender matters a great deal here, which is one reason advice can be so useful. Criteria vary widely, so treat these timeframes as a rough guide rather than a fixed rule.

Improving your chances

A few sensible steps can make a real difference:

• Keep clean, up-to-date accounts. Well-prepared figures from a qualified accountant give lenders confidence.
• File your tax returns promptly. Lenders often want to see finalised figures, so leaving returns until the last minute can hold things up.
• Be mindful before your application. Very aggressive expensing or minimising declared profit for tax purposes can reduce the income a lender will recognise, which may lower how much you can borrow.
• Build and protect your credit record and save as large a deposit as you reasonably can, since both widen your options.
• Avoid making lots of applications at once, which can leave multiple marks on your credit file.

Why a broker helps

Because lenders differ so much in how they treat self-employed income — which years they average, how they handle dividends and retained profit, and how much trading history they require — the right lender for your situation may not be the obvious high-street name. A whole-of-market broker knows which lenders suit self-employed applicants, can present your accounts in the way underwriters expect, and saves you approaching lenders one by one only to be turned down for reasons of policy rather than affordability. Mortgage advice is provided by our regulated (FCA-authorised) specialist partners; we simply make the introduction. You can read more on our mortgages and lending page, or get in touch to talk it through.

Being self-employed is not the obstacle it is sometimes made out to be. With organised paperwork, a sensible view of your declared income, and the right lender, a mortgage is very achievable. Remember, though, that any mortgage is secured against your property — your home may be repossessed if you do not keep up repayments. This guide is general information rather than mortgage advice; a regulated adviser can give you a recommendation based on your circumstances.