What you need to know about mortgages when you’re self-employed
In this article we bust some myths about self-employed mortgages and share some tips to increase your chances of getting the offer you need
If you’re self-employed, you’re probably still reeling from the stress of submitting your tax return on time a few weeks ago. Now that’s out of the way though, let me turn your attention to the mortgage market, especially if you have plans to get on the property ladder or remortgage soon.
I wear two hats while I write this article – that of a mortgage broker, and that of a self-employed homeowner. I know from personal experience that the process can feel like you’re jumping through a lot of hoops. Rest assured though this isn’t because lenders view self-employed applicants in a worse light; they just need more evidence to assess affordability and risk.
So, let’s start with the question I hear most often….
Can I get a mortgage if I’m self-employed?
In short, yes! Yes, you can.
The process of getting a mortgage when you’re self-employed is very similar to if you’re on PAYE. The only difference is the information needed to reassure the lender of your income. With the right amount of planning, you should be able to get the same competitive rates as someone who’s employed.
How is my income assessed when I’m self-employed?
Lenders are primarily interested in your net income (your revenue minus your expenses, before tax) but exactly what they ask for depends on your unique setup and the lenders’ policies. If you do accounts (some sole traders don’t, which is fine) you will typically be asked for 2-3 years of accounts. If you only have one year’s accounts or tax returns, it might work with some lenders, so there still might be options for you, albeit limited. It’s worth having a chat so you can understand what may be possible. Even if it’s not right now, at least we can start the conversation so you’re prepared for when better options are available.
This isn’t designed to penalise new businesses; it is so lenders can establish an average income over a fair period. It also helps to take account of the lean and boom years that a smaller business may encounter.
Some lenders favour “dividends and salary” over “profits and salary”, so it’s good to consider all lending options to make sure they fit your situation and the information you’re able to provide.
When I work with self-employed clients, it is this ability to research all the options and wade through the complexity that they find particularly valuable.
The documents you’ll likely need to provide relating to your income include the following:
- 2 years of certified accounts
- 2 years of your tax year overviews
- 2 years of your tax year calculations (SA302 form)
How can I increase my chances of getting a competitive mortgage offer when I’m self-employed?
1. Plan ahead
If you can, think about your mortgage and house-buying plans at least 2 years in advance. This way, you can get your documentation set up from the start, so the preparation isn’t too overwhelming when it is time to apply. Also, look to be organised and get tax returns and accounts done quickly. The sooner you have access to your latest year of accounts, the more lending options this opens up.
2. Keep your personal banking simple and your income traceable
As with mortgages for those who are PAYE, some lenders may also want to see your current account statements for the last 3 months. It helps if the earnings stated in your accounts match the income in your current account. As a result, keep your banking simple (i.e. avoid lots of interlinked bank accounts); you’ll avoid lots of documentation and cross-referencing.
3. Hire an accountant
As a business owner, you may already do this so it’s worth chatting to your accountant about your plans to apply for a mortgage. They can then provide you with the documents you need. If you don’t currently use an accountant, then it’s worth considering, to ensure your accounts are accurate and easy to read. This will mean less back and forth with your mortgage lender when you apply. In some cases, lenders will only accept your application with an accountant’s reference, so it can be an important investment to ensure you have access to all your mortgage options.
4. Work with a mortgage broker
There is often more complexity to discuss with lenders when you’re looking for a self-employed mortgage (e.g. how they assess income etc). It helps to have a mortgage broker researching your options, representing your interests, and providing the most relevant information for each lender. For more information on how a mortgage broker can help take a look at our previous blog on this topic or get in touch with us for a no-obligation chat.
5. Protect your income
Income protection supports you financially if you can’t work due to illness or injury. It’s not a pre-requisite when applying for a mortgage but it does help lenders to see that your income has some guarantee.
I recommend Income Protection for all clients, but particularly those who are self-employed. When you are employed, you might be lucky and get a supportive employer who helps you when times get tough. But when you’re self-employed there is no safety net to ensure you can pay your mortgage and bills if something happens to you. Especially if you have a family that are relying on you. But even if it’s just you relying on you!
How can Downton Mortgages & Financial Services help you if you’re self-employed and looking for a mortgage?
I set up Downton Mortgages & Financial Services to give people confidence in their financial decisions. We do that by making your options clear and easy to understand. There are no silly questions, and we are on hand to help every step of the way from research through to application.
For more information about our services for self-employed mortgage applicants then take a look at our website here or alternatively, get in touch for a no-obligation chat about your circumstances and house buying plans.
Sources
Other blogs we’ve written on related topics
How would you be able to pay your bills if you were unable to work
How to protect your mortgage debt with personal insurance
Important Information
The information contained within was correct at the time of publication but is subject to change (March 2025).
Please note for all mortgage products, terms and conditions apply. This information is a summary only. You will receive full documentation upon application which sets out the terms, conditions and limitations of lending provided.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.