Self Employed Mortgages
Our Self Employed Mortgage Service
Based in Bristol we can offer you a first class mortgage service:
Special features of what we offer include:
To investigate your self-employed mortgage options call our team on 0117 403 4474 or fill in our call back form.
If you are self-employed you could find getting a mortgage more difficult than people in standard employment as you can’t offer the lender the reassurance of a guaranteed salary.
However, there are ways for those who are self employed to prove that they can afford to make mortgage repayments without needing the backing of a permanent employer.
Mortgages for self employed applicants can be a little more complex than a standard mortgage, however for most, it’s still possible to get a mortgage whilst self employed.
Self Employed Mortgage Key Takeaways
You will be considered to be a self-employed applicant if you are a sole trader, freelancer, contractor, or business owner with over 20-25% ownership or director.
It’s entirely possible to get a mortgage when self employed, there are just extra steps involved in the income part of the application.
You typically will have access to the same mortgage products as an employed applicant. Some specialist lenders offer dedicated self employed mortgages.
You should expect to provide 2-3 years of accounts/tax returns, and a good credit history (although there are options if you have less).
Seeking advice from a mortgage advisor specialising in self employed applications is generally recommended
What is a self employed mortgage?
A self employed mortgage is a mortgage for those who work for themselves, including freelancers, contractors and business owners.
You are considered self-employed for mortgage purposes if you own 20-25% or more of a business, or are a sole trader.
The main difference is around proving your income.
Because you don’t have a contracted salary like an employed person, lenders need to know your self employed earnings are reliable.
And you can prove this through multiple years of tax returns demonstrating your annual earnings.
You’ll need at least 2-3 years for most mortgage lenders, but if you only have 1 year, a good mortgage broker might still be able to help you find a product.
Although there are dedicated mortgage products for self employed applicants, you can also apply to traditional mortgages available as long as you meet the affordability and income criteria.
Employee vs. self employed mortgage applications
The main difference between applying as a self employed applicant and an employee is in the income stage of the mortgage application.
An employed applicant just needs to submit standard documents every employee has, such as P60s and 1-3 months of payslips.
Self employed applicants won’t have these documents, so will have to rely on accounts of tax returns instead.
Self employed applicants typically need to have 2-3 years of accounts/proof of income, which your affordability is based on.
Who is eligible for a self-employed mortgage?
To be eligible for a self-employed mortgage, you must be a UK resident and have been self-employed for a minimum of one year, although most lenders expect at least two to three years of accounts.
The requirements for getting a mortgage when self employed
Proof of income
Lenders will typically require two to three years of accounts or tax returns (SA302 forms) to assess your income.
Some lenders may also consider retained profits for limited company directors. If you’re a contractor, you may be expected to show proof of current/future contracts too, to bolster your application.
A good credit score is essential for securing any mortgage. Lenders will review your credit report to evaluate your financial responsibility and repayment history.
A minimum deposit of 5% to 10% of the property's value is usually required, although a larger deposit may improve your chances of securing a mortgage and result in better interest rates.
Lenders will evaluate your income, regular expenses, and any outstanding debts to determine how much you can afford to borrow.
How to improve your chances of getting a mortgage when self employed
As a mortgage when self-employed is harder to obtain, it’s necessary to consider all the ways in which your chances may be improved - preparation is key.
Having a large deposit gives you a wider range of mortgage products: the lower the LTV the lower risk the mortgage is for the lender.
Consult a mortgage advisor specialising in lenders that lend to self employed applicants.
Ensure you have full accounts, proof of income and tax returns up to date.
Improve your credit rating as much as possible before your application
Be on the electoral roll
Types of self-employed mortgages available
As a self employed applicant you will generally have the same mortgage options available as a standard mortgage applicant and some products from specialist lenders.
Fixed rate self employed mortgages
These mortgages offer a fixed interest rate for a set period, providing certainty and stability in monthly repayments.
Ideal for self employed applicants who have fluctuating incomes and need stability in their outgoings.
Variable rate & tracker self employed mortgages
These mortgages have an interest rate that may fluctuate over time, depending on the lender's standard variable rate (SVR) or external factors such as the Bank of England base rate.
Offset self employed mortgages
These mortgages allow you to link your savings account to your mortgage, reducing the interest charged on the loan.
These are generally ideal for those with large savings, large borrowing or higher rate taxpayers.
Shared Equity self employed mortgages
A shared equity mortgage means you only buy a share of the property, typically 25% or more. This means you can get a smaller, more affordable mortgage.
When considering the type of mortgage you want, you should consider the pros and cons of each, the risks involved and the alternatives.
Pros and Cons of applying for a mortgage when self employed
You typically have access to the same mortgage products as a standard applicant
Gets you on the route to home ownership
Lots of options across the market for self employed applicants
The application process is more complex
Interest rates may be higher
2-3 years of tax returns is difficult for newly self employed applicants
Fluctuating income may reduce your affordability and therefore reduce your options
You may require a higher deposit or face higher interest rates
What counts as ‘self-employed’?
A mortgage lender will consider you self-employed if you own more than a set percentage of a business.
This is usually around 20 to 25%. Therefore, if you are a sole trader, in a partnership, or a company director, you may be considered self employed for the purposes of taking out a mortgage.
If you are classed as self-employed then you will need to prove the income that you are declaring.
This can be done by supplying the accounts of your business or an accountant’s reference, which usually need to be prepared by a qualified accountant.
Are self-cert mortgages still available?
In the past, many self-employed people relied on self-certified mortgages, which are no longer on offer following the banking crisis in 2007.
Self certification mortgages did not require proof of income, which meant that self-employed people were able to borrow large amounts without having to provide proof of earnings.
They were subsequently banned by the Financial Conduct Authority (FCA).
However, there are lenders who will offer mortgages to self employed people that have rates similar to those offered to traditional employees.
Where to get a self employed mortgage
Some specialist lenders offer mortgage deals designed specifically with the self-employed in mind.
However you might not necessarily need to use a specialist lender because many mainstream mortgage lenders will also offer loans to self-employed people on a case-by-case basis.
Lenders will want to see around two years’ worth of accounts plus your most recent SA302 form.
This is the tax calculation form that HMRC sends out annually and will show the lender how much tax you owe in a given tax year.
How are mortgages for self-employed people assessed?
A normal mortgage application will be assessed on the basis of your salary - which meant that, in the past, many self-employed people faced difficulty securing the mortgage they wanted.
However, mortgage applications for self employed people are assessed differently from traditional mortgage applications.
A mortgage lender will assess a self employed mortgage application on a case by case basis, using the evidence you provide in the form of your accounts and business records to decide whether to offer you a mortgage.
Top tips for getting a mortgage if you are self employed
Hire an accountant to prepare your accounts and tax return – but make sure that they know you are applying for a mortgage. In normal practice, an accountant will usually use legitimate methods to minimise a client’s income for tax purposes, but if you are trying to get a mortgage, this can have an adverse effect as you want to present the maximum possible income to the lender.
To find the best self employed mortgage deals call our team on 0117 403 4474 or request a callback.
What documents do I need for a self-employed mortgage application?
You will typically need 2-3 years of accounts or tax returns (SA302 forms), bank statements, proof of identity, proof of address, and details of any outstanding debts.
How long do I need to be self-employed to qualify for a mortgage?
Some lenders will accept a minimum of one year of self employment, however the vast majority require 2-3 years.
Can I get a mortgage with only one year of self-employment?
While some lenders may consider applicants with only one year of self-employment, the options may be limited, and interest rates may be higher.
How is my income assessed for a self-employed mortgage?
Lenders will typically assess your income based on your average earnings over the past two to three years, as shown in your accounts or tax returns.
It’s therefore important you consider carefully when you make a mortgage application - will your average income be higher - and therefore giving you the opportunity to borrow more on your mortgage if you wait a few months until your next tax return is submitted?
Do self-employed mortgages have higher interest rates?
Interest rates for self-employed mortgages can vary, and while some lenders may charge higher rates due to perceived risk, shopping around and working with a mortgage broker can help you find competitive rates.
Can I get a self-employed mortgage with bad credit?
It is possible, but your options may be limited, and interest rates may be higher. Improving your credit score and working with a mortgage broker experienced in adverse credit can increase your chances of securing a mortgage.
You should also expect to be required to have a large deposit of 25% or more for a bad credit, self employed mortgage.
Do I need a larger deposit for a self-employed mortgage?
A minimum deposit of 5% to 10% is usually required, depending on the mortgage product. However, a larger deposit may improve your chances of securing a mortgage and result in better interest rates.
Can I use retained profits for a self-employed mortgage application?
Some lenders may consider retained profits for limited company directors, but this will vary between lenders and may require additional documentation.
Is it harder to get a mortgage if I'm self-employed?
The application process can be more complex and time-consuming for self-employed individuals, and you may be assessed to have a lower affordability based on the average income but with proper preparation and professional advice, securing a mortgage is achievable.
Can you have a joint application with an employed applicant?
Yes, however the self employed applicant will still need to provide the proof of income and affordability they would need with an individual application.
Getting a mortgage as a self-employed potential homebuyer in the UK may come with unique challenges, but with the right preparation and guidance, it is possible.
By understanding the requirements, the extra steps needed, exploring available mortgage options, and seeking professional advice, you can get started with your mortgage application.