Mortgages for the Self-Employed!

Written by Damon Pike – Principle Mortgage and Protection Advisor

Last updated: 24th January 2023

It is often considered to be more difficult to get a mortgage if you are self-employed. Whilst it’s true that it can be more complicated than ‘traditional’ employment, it’s not necessarily more difficult if you understand what the lenders are looking for and how they fit your situation. 

What counts as self-employed?

You are normally considered self-employed if you are required to report to HMRC your earnings for tax purposes, (I.E., filing a tax return). From the eyes of mortgage lenders this is no different. You may be considered as self-employed if you are a:

• Contractor
• Sole trader/ freelancer
• Company Director
• Company shareholder (more than 20%)
• Partner (For example an LLP)
• CIS subcontractor (construction industry scheme)
• Foster Carer – Read more about mortgages for foster carers here
• Work for a family business (sometimes)

What’s the difference between employed and self-employed when applying for a mortgage?

The way your affordability is assessed is slightly different because your income structure is not the same as somebody who is employed. Sometimes your expenditure can have an impact too. The products are the same, but it may be more difficult to prove your likely level of income in the future. Your recent credit history and credit commitments as well as deposit amount will also be taken into account when assessing your affordability for a mortgage.

What proof of income do I need to provide?

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• In most circumstances you will need to provide your latest three years accounts – These include Tax calculations (SA302) and Tax year overviews (TYO’s) If you do your self-assessment tax return online you should be able to print/save your SA302 forms and TYO’s with ease. (In most cases your accounts should be no more than 18 months old, which means you may need to submit your tax return much sooner than the deadline)
• Occasionally, a lender may ask you to provide an accountant’s certificate, particularly if the finances are complex.
• You will need to provide business bank statements.
• If you’re a contractor, you may also need to supply evidence of ongoing or upcoming contracts.
• If you’re a company director, you will need to provide evidence of dividend payments or retained profits. You may also be required to provide profit and loss reports and or balance sheets.

The proofs required will vary depending on your circumstances and the lenders criteria. Speak to a trusted mortgage advisor to discuss your eligibility.

How long do I need to have been self-employed to get a mortgage?

To be in the best position, you will ideally have 3 years of income proof. Lenders may take an average of these, however, if profits are in decline, they will likely reduce the amount they are willing to lend. There are lenders that will lend with 2 years proof of income and a couple may even lend with only one year or even less in certain circumstances. For example, if you have recently gone self-employed with a contract doing the same job as when you were employed.

Can I still get a mortgage with declining profits?

It may still be possible and will depend on your circumstances, for example if you have a good reason for declining profits or have proof that they are expected to recover in the future. For example, some lenders may not lend to you if you have taken an SEISS grant or Bounce back loan as this shows evidence that you have been affected by the pandemic. However, there are other lenders who will look at this depending on your circumstances.

Will a mortgage be more expensive because I am self-employed?

Normally, no. But this will very much depend on your circumstances. If you can prove your taxable income has been steady and is likely to continue, the mortgage products and rates will be the same as anybody who has an employed salary. If you don’t quite fit the criteria for these products for example if you only have one years SA302’s or you retain profits in the company, you may need to apply to a specialist lender, and their rates may be slightly higher. A Mortgage advisor can help to match you with the right lender for your circumstances.

Can I get a mortgage based on employed and self-employed income?

Many lenders will accept income from multiple sources when calculating how much they are willing to lend. Different sources of income may have a different weighting for they calculations and so the amount each lender may be able to lend to you could vary greatly. Some lenders will also accept additional sources of income such as overtime and commission payments too, while others will not. To give your application the greatest chance of acceptance make sure you apply to a lender which is favourable to your situation.

Can I get a mortgage if I am on a zero hour contract or a ‘gig economy’ worker?

The rules for this type of work are quickly adapting, many lenders are recognising the changing landscape for employment and the need for flexibility. Currently, you would be considered for a mortgage in the same way as other self-employed workers; if you have a history of earning income an average will be used for calculating how much you may be able to borrow. This type of income may also be used to top up income from elsewhere, when being assessed for affordability.

Can I Self-Certify my mortgage?

Self-certification mortgages were removed from the market by the FCA (Financial Conduct Authority) in 2014 following the mortgage market review. These were originally designed to make the mortgage process easier for the self-employed. But some people inflated their income on their mortgage applications to be able to borrow more and later struggled to make their repayments.

This means that even if you applied directly to a lender, they would still need to assess your affordability, request documents for proof, and check that you fit their criteria. By using a whole of market mortgage advisor, we can do this for many lenders at once so that we can match you to the lender that best fits your priorities.

And finally

If you need any more information, or you want to discuss your situation, contact us using the form below and we will get straight back to you.

Damon Pike

Principle Mortgage and Protection Advisor

Damon Pike

Principle Mortgage and Protection Advisor

Damon Pike

Principle Mortgage and Protection Advisor