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Self-employed mortgage

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Can self-employed people get a mortgage?

If you're self-employed or own a small business, getting on the property ladder and finding the right mortgage can prove challenging.

Before lenders consider offering anyone a mortgage, they need proof that payments are affordable - and not just affordable now, but in the future, too.

Self-employed people tend to have fluctuating incomes, so lenders often regard them as complicated and more of a risk.

That’s why the chances of getting accepted for a mortgage are generally lower for the self-employed than for people in PAYE employment.

But there are plenty of mortgage providers - even high street banks - that will consider applications from the self-employed. So don’t be put off.

You’ll just need to go to a few extra lengths to provide evidence to your mortgage lender that you can keep up monthly repayments.

For example, people in employment are usually only asked for their most recent one to three payslips as proof of income.

But if you’re self-employed you’re required to provide evidence of at least two years of self-employed income accounts. In some cases, lenders may ask for three years.

If you have this proof, a good credit rating, and your finances are well-organised and healthy, then you're likely to have access to exactly the same selection of mortgages as anyone else.

However, if you don't have the necessary evidence, you may find your mortgage options are more limited.

What do lenders class as self employed?

Lenders consider you to be self employed if you have more than a 20% share of the business that is your main source of income.

You may be a sole trader, in a partnership or a director in a limited company.

Freelancers hired to work for different companies and independent contractors are also classed as self-employed.

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How much can I borrow?

Your mortgage lender will consider your income, your regular financial outgoings, your credit history plus the size of your deposit to come up with a figure on how much you can borrow.

To get an estimate of how much you may be able to borrow and your repayments, try our mortgage calculator.

Self-employed mortgage requirements

To be considered for a mortgage, you’ll need to have been trading for three years and able to show proof of your income for the past two complete tax years. Some lenders will ask to see three years of accounts.

There are some specialist lenders who take on applicants who cannot provide this evidence and have been self-employed for only a short time.

If that's the case for you, you'll probably be asked to show evidence of future contracts and commissions to convince your lender you’ll be able to afford repayments. But your choice of mortgages may be limited.

How to apply for a self-employed mortgage

You’ll need to provide a few documents to your lender to prove you can manage repayments. These can include:

Proof of your identity

  • Passport and/or driving licence
  • Council tax bill and/or recent utility bills

Proof of your income

  • An SA302 form from HMRC for the past two or three trading years to show your tax calculation. You can access the forms by logging on to your HMRC online self-assessment account or you can call HMRC. But it can take up to two weeks to receive copies by post
  • A set of accounts certified by your accountant if you have one
  • Proof of future contracts, commissions and projects
  • Evidence of upcoming dividend payments if you are a company director

Proof of your expenditure

  • Bank statements from the last three months

How to improve your chances of being accepted for a mortgage

As a self-employed borrower, the buck stops with you to prove you can afford the monthly mortgage repayments.

There are a few things you can do before applying to give yourself the best chance:

1. Watch your spending

Lenders can ask to see bank statements and will ask you about your spending habits.

This doesn't mean you'll be judged harshly for eating out or having a gym membership. But a lender needs to be confident you can afford to repay the mortgage every month with enough disposable income left over to pay other outgoings.

If you already pay rent or a mortgage, this goes some way to proving to your lender that you can afford a mortgage, but being self-employed means your income could be considered riskier.

2. Improve your credit rating

Pay off any credit cards and phone bills as soon as they're due to avoid getting a late payment recorded on your credit history.

Get on the electoral register and make sure all your finances are registered to one address, and read our other tips on how to improve a credit score.

3. Save for a larger deposit

It may seem unfair, but you may need to save a larger deposit if you're self-employed – ideally 20% or even more. This will help give you access to a wider range of deals.

The fact that the larger a deposit you have the more likely you are to be approved applies to everyone, but especially to the self-employed.

4. Keep records

As mentioned, you'll probably need at least two years' worth of accounts before you apply – so make sure you get your book-keeping in order if you're planning a mortgage application.

5. Speak to an adviser

Documents required for a self-employed mortgage are a bit more complicated, so you might find it helpful to use a mortgage adviser. They'll give you more information about your mortgage options, and can help you with your application.[1]

Frequently asked questions

Many self-employed people took advantage of the Self-Employment Income Support Scheme (SEISS) to help them through the financial impact of the coronavirus pandemic. Although taking the grant doesn’t impact your credit score, mortgage lenders differ in their attitude to it.

Some won’t see it as an issue if your earnings have since returned to normal, pre-Covid levels. But a small number of lenders won’t currently consider applications from anyone who has taken the grant. They see it as a ‘red flag’, indicating financial difficulties.

Most lenders are accepting applications from people who took the SEISS grants, though, and will consider them on a case-by-case basis.

As well as assessing you on the usual affordability criteria, your lender may ask to see your latest three-months of bank statements. This will be a chance to prove you’re now trading at levels similar to those before the pandemic.

Lenders may also want to know exactly why you needed the grants.

At the end of the day, it’s all about affordability. So, if you can demonstrate that your business is up and running and has returned to the level it was operating at pre-Covid, then there should be plenty of lenders willing to take you on.

Lenders’ criteria change all the times, so speaking to a mortgage broker can help. They have information on up-to-the-minute changes to hand and will know which lenders are best for your circumstances.

Self-certification mortgages for the self-employed – where you could declare your income without proof – were widely withdrawn from the mortgage market in the wake of the 2008 credit crunch and were banned by the Mortgage Market Review (MMR) in 2014.

Lenders now want proof of affordability, so will ask to see at least two years' worth of accounts or tax returns to verify your income.

There’s no such thing as a ‘self-employed’ mortgage. Self-employed people apply for the same mortgages, with the same interest rates, as everyone else in regular employment.

As long as you can provide enough detailed information about your income, savings and future work prospects, you will have the same range of mortgages available to you as someone in PAYE who earns the same sort of salary as you.

Yes. A joint mortgage means both names will be on all mortgage documentation and you’re both responsible for repayments. Both of your incomes will be taken into account to assess affordability.

The self-employed applicant will need to provide various documents as proof of their income and outgoings (see above), just as they would if they were applying for the mortgage on their own.

If you don't have two years of accounts, there are some lenders who might still consider your application.

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THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME OR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE

PLEASE NOTE: THE FCA DOES NOT REGULATE MOST BUY TO LET MORTGAGES

[1]For online mortgage comparison and advice Gocompare.com introduces customers to Koodoo which is the trading name of Mortgage Power Limited who are authorised and regulated by the Financial Conduct Authority (FRN 845978). Gocompare.com’s relationship with Koodoo is limited to that of a business partnership, no common ownership or control exists between us. Please note, we cannot be held responsible for the content of external websites and by using the links stated to access these separate websites you will be subject to the terms of use applying to those sites.