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Self-employed mortgages
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What is a self-employed mortgage?
There is no actual ‘self-employed mortgage’. There are some lenders that are more flexible to the needs of self-employed borrowers than others, but the product range offered to you will be the same regardless of your employment type.
Can you get a mortgage if you’re self-employed?
As a self-employed person, it’s no more difficult to get a mortgage than it is for an employed person, so long as you’re still able to meet the mortgage lender’s requirements. Whilst you’ll need to show more evidence of your income than the average employed individual, there is no other difference in how you apply, or the mortgages available to you.
Self-employed people will typically benefit from speaking to a mortgage broker with experience organising mortgages for self-employed applicants, as they will know which lenders’ terms are most aligned with your circumstances.
Contact a mortgage broker if you need help finding and comparing those lenders that will accept your circumstances, whether you’re a limited company director, sole trader or contractor.
What do mortgage lenders class as self-employed?
Freelance and contract workers, sole traders and those who earn their primary income from a business they own 20% or more of, are all classed as self-employed.
Limited company directors are also considered to be self-employed for mortgage application purposes, even if they are an employee of their own company, and treated as employed by HMRC.
Do you have to pay higher mortgage rates if you’re self-employed?
Not by default, no. If you’re able to meet the lender’s criteria as well as an employed person, then how you earn your money is not going to change your interest rates, so long as you can prove your income is stable and ongoing.
In reality, it’s your overall financial picture that will influence the sort of interest rates you are offered, this includes your affordability, credit record and how much deposit and/or equity you have available.
If it turns out that a specialist lender has more suitable products for you, you might find that their interest rates are slightly higher than those you would find on the high street, as the lenders are generally willing to take on more risk.
What documents do I need for a self-employed mortgage?
Documentation required generally to apply for a mortgage
Photo ID - Passport or driving license
Proof of address - Utility or council tax bill
Bank statements - covering 3 months
Payslips - covering 3-12 months, depending on how long you have worked in the industry and the lender’s preference
If you are paid bonuses, commission, or any type of shift allowance that is not included on your payslips, A P60 will usually be needed to show these
Proof of deposit origin - this can be gifted but must be evidenced as such
Additional requirements if self-employed
Bank statements - May need 6 months - 3 year’s worth depending on the lender. If you are a business owner then both personal and business bank statements will be require
Proof of income - This will vary based on your specific self-employed income (see below)
Sole trader, freelancer or company *director or partner
1-3 years’ accounts (which must be certified by a qualified accountant) and tax calculations from HMRC. *Directors and partners may also need proof of dividends and retained profits, depending on the lender
Contractor
As above, or proof of your day-rate and contracts covering at least 12 months previously, and typically 12 months ahead – which is needed will depend on the calculation method your lender uses
CIS/Umbrella contractor
You will typically be treated as employed, but may need to show 6 months of payslips rather than 3
How do lenders calculate my income?
Self employed income is treated slightly differently to employed income when calculating how much you can borrow. It also varies slightly depending on the type of self-employed worker you are, and the lender, as they don’t all use the same methods.
It’s also worth noting that certain lenders will be less comfortable with certain types of self-employed applicants, so it’s important to apply with a lender that is open to your income type and will calculate it in the most beneficial way. A broker will help guide you to a lender that suits your needs.
If you’re a freelancer or sole trader, the majority of lenders will take an average income based on the last two or three years of net profits. There are lenders that will look at as little as 12 months worth of net profits, so long as you have the tax calculation to back this up, however, typically only lenders that specialise in self-employed mortgages will consider this.
Another thing to be aware of is that no matter how many years of accounts you are able to provide, if the most recent year has seen a drop in profits, most lenders will only be willing to base your loan on that year’s figures.
Limited company directors’ income calculations tend to vary a bit more depending on the lender’s preferred style. Most will use an average of the past few years salary and dividends, however, some are willing to look at your share of the net profits.
Contractors are also looked at differently depending on the lender, and whilst some will use the same method as any other freelance worker, if you work on a day rate basis, some lenders will annualise this to create a salary-type figure.
What is a self-certification mortgage?
Also known as “self-cert”, these notorious mortgages allowed borrowers to self certify their earnings without the need to provide any tax records as proof. This type of mortgage was banned by the Financial Conduct Authority (FCA) in 2009 following concerns that over-burdened mortgage borrowers had contributed to the financial crisis of 2008.
Improve your chances of getting a self-employed mortgage
Although being self-employed doesn’t automatically mean you will struggle to gain mortgage approval, there are a number of steps you can take to increase your chances of getting accepted. These include:
Saving a large deposit reduces the risk to your lender as it reduces the amount you’ll need to borrow compared to the cost of the property, known as your loan to value (LTV). You could also use the equity in your existing home if you are looking to move house or remortgage
Prepare your documentation ahead of your application. If you do your own accounts, make sure a certified accountant has signed them off. Tax records will need to be recent, so make sure you’re up to date with your tax returns and have your end of year tax calculations to hand
Seek advice from a broker as every lender has different criteria, and they will be able to advise you about which lenders are more suitable for your employment type. They will also be able to help you to get an agreement in principle, which will give you a firmer idea of how much you might be able to borrow
Improving your credit record is a surefire way to make yourself more desirable to a lender. This is not always as difficult as it may seem and simple steps like ensuring you’re on the electoral roll, paying all of your bills on time and having any necessary corrections made to your credit record will all help. It’s also recommended that you don’t take on any further debt or financial responsibilities before you apply, especially if you are already using credit facilities
Avoid non-standard construction properties such as thatched or listed buildings. Properties above shops and other businesses can also be less attractive to certain lenders, so it’s best to stick with standard brick and mortar built properties to maximise your chances of acceptance
How to find the best self-employed mortgage
If you’re self-employed you may be wondering how to pick the best type of mortgage for your circumstances. The good news is, you generally have access to the vast majority of mortgage types and deals that all other applicants do, such as:
Mortgages for first-time buyers
Fixed-rate, tracker, variable and other types of interest rate
Self employed mortgage FAQs
Can I get a help-to-buy mortgage if I am self-employed?
Yes, so long as you still meet the other criteria. Here is what you need to know about help to buy.
How many years do you have to be self-employed to get a mortgage?
Lenders will be looking for an absolute minimum of 12 months worth of accounts and tax calculations, but most will require two to three year’s worth. There can be certain exclusions to this for people in particular professions, for example, a doctor who is due to qualify soon.
How much can I borrow if I am self-employed?
The amount you can borrow is not influenced by the type of income you earn, only how much you’re able to afford to repay. Being self-employed should therefore not mean that you can borrow any less than other applicants.
In some circumstances, it’s possible that a lower multiple of your income may be offered, but this is typically due to a lack of time spent in a self-employed role, rather than explicitly because you are self-employed.
Does a self-employed mortgage cost more than a standard mortgage?
A self-employed mortgage is a standard mortgage. There is nothing different about the mortgage product, or the application process, other than how you prove your income.
Will lenders consider self-employed income from abroad?
Some might be comfortable with this, so long as you meet the mortgage requirements in terms of how long you would need to be present in the UK to purchase a house here. You would also need to be paid in GBP in most cases.
If I used the government SEISS grant during the pandemic, can I still get a self-employed mortgage?
At first there were a fair few lenders that were uncomfortable lending to those that had made use of the scheme. However, so long as you can evidence that your income has now returned to pre-covid levels and why you needed it at the time, it shouldn’t be a problem with most lenders.
Will lenders consider me to be self employed?
Lenders consider the following employment types as self-employed:
Freelance workers
Contractors
Sole traders
Limited company directors/partners
Can I get a self certification mortgage?
No, self-cert mortgages were banned by the Financial Conduct Authority in 2009.
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