Finding The Right Mortgage When You’re Self-Employed

Frequently Asked Questions

• Can I get a mortgage if I’m self-employed?

  The short answer is: yes, of course! Some lenders have specialist mortgages for those that are self-employed, but you can apply for mortgages that those in regular employment are eligible for too.

  “It’s certainly not impossible to get a mortgage if you’re self-employed,” says Kye Collier, director of Crescent Mortgages.

  “There’s a few more bits of paperwork, you need a bit more history, but it’s nothing like the extreme version people imagine. The process is pretty much identical to getting a mortgage when you’re PAYE – it’s just different documents.”

  While it used to be true that getting a self-employed mortgage was challenging, in recent years (as the number of self-employed has grown) the market has progressed and lenders now know that being self-employed does not automatically make you more of a risk than other borrowers.

  It’s also a myth that you have to automatically pay a higher rate of interest if you’re self-employed. Providing your self-employed income is enough – you’ll have access to all the same rates as an employed person.

  The goal is to give any lender confidence that you’re able to afford the mortgage repayments, especially if things like the interest rate or your circumstances change, and that’s where we can help.

• What if I’m a sole trader, freelancer or limited company?

  This can vary quite a bit, but that’s why we’re here – we’ve got vast experience in the area of helping the self-employed get mortgages.

  “People generally know their salary, as it’s easy to work out: it’s the amount on their payslip times 12,” says Kye.

  “But sometimes we’ll see someone who’s self-employed say ‘I earned £40,000 last year,’ when actually that was turnover before expenses, and the actual profit – which is the important bit for lenders – was £20,000.”

  Firstly, it will depend what kind of self-employment you’re in. If you’re a sole trader, then traditionally lenders will want to see the last 2 years of your net profit (as in turnover minus expenses) to understand what kind of repayments you might be able to make.

  If you’re a partner in a business, you’ll need to prove what share of the profits are yours.

  If you’re a director in a company, some lenders will look at your salary and dividends (usually for the last 2 years). Other lenders will focus on the company net profit, which can be beneficial if you took a smaller dividend and left some profit in the business.

  If you’re a freelancer / contractor, then it will depend if you’re structured as a sole-trader or Ltd Company.

  If you’re a day contractor, some lenders can focus on your day rate rather than company profits, which can significantly increase your maximum mortgage.

  “Day-rate contractors are, actually, often on quite good salaries, so we can end up finding them a decent-sized mortgage,” says Daniel Pitman, director of Crescent Mortgages.

  “It doesn’t matter whether they’re on a day rate, inside or outside IR35 (the tax rules used by HMRC to define whether someone self-employed should be classed as an employee), under an umbrella company, or through a limited company.

  “Actually, a contractor through a limited company is one of the few types of self-employed person assessed differently to a normal director, who’d normally need two years’ accounts. Often a contractor can be assessed more favourably.”

  Having evidence of signed contracts for future projects can help here, as well as any explanations of gaps in your work history.

• How many years of accounts do I need to get a self-employed mortgage?

  The general rule of thumb is that you’ll need to have been trading at least two years to be considered for a self-employed mortgage.

  This is so the lender can get a good understanding of the profit you’re making, and use that (along with your other income and outgoings) to work out how much you can afford to repay.

  However, there are other lenders that will accept a shorter time period – for instance, some will accept 12 months’ trading.

  They may also use things like a projection of future earnings and bank accounts to create the profile they need to decide on an application.

  We’ve had plenty of experience helping people with all kinds of self-employment histories – and we can usually find a solution.

  “One self-employed client of ours had been struggling to find a mortgage. She’d started her own dog-grooming business, but couldn’t get accepted,” says Kye.

  “But she’d been employed as a dog groomer for eight years before starting her own business.

  “The issue was she’d applied for a mortgage eleven months into her first year. I told her to finish 12 months. She came back with a profit, we put her through a lender we knew accepts a shorter account history, and she got a mortgage offer in three days.”

• How much can I borrow?

  The size of the mortgage you can get as a self-employed worker depends entirely on your circumstance – but the good news is that it works in the same way as an average mortgage application.

  A good rule of thumb is being able to borrow between 4.5 and 5.5 times your annual income, but the exact figure will depend on a variety of things.

  Lenders will look at your earnings to understand how much you’re able to afford – this can include things like averaging your income from recent years to get an understanding of how much you can repay.

  They’ll also look at your outgoings, working out whether the repayments would be affordable (both now, but also if interest rates were to go up in the future).

  It also depends on the Loan to Value ratio (LTV) of the property you’re buying, usually expressed as a percentage.

  This works out what percent of the value of the property you’ll be borrowing – lenders will generally give better rates, and are more likely to offer a mortgage, if you’ve got a lower LTV.

  Of course, there are other ways to improve the amount you can borrow – such as applying to a more generous lender. In this case, their income is factored in too, meaning the lender is likely to offer you more.

• What documents will I need?

  The good news is that you don’t need to worry about this – we’ll help you find the right documentation, and explain exactly why it’s needed..

  Many of the same documents apply to self-employed mortgages as they do to most applicants: proof of identity, address, bank statements and proof of any deposit.

  If you’re self-employed, you’ll need your SA302 (the official tax calculation forms from HMRC) and your tax year overview for the last 2 years.

  “One of the most common problems we solve is helping people find where to get their documents, such as tax calculations,” says Kye.

  “You’ve got to go to the right portals, and because we’re both self-employed, we know where everything is, so we can tell them exactly where to click.”

  Depending on what kind of self-employment you’re in, you might also need Certified Accounts from a qualified individual, and if you’ve been self-employed for a shorter period of time, you might need an accountant to verify projected earnings.

  If you’re a partner in a firm, you’ll potentially need dividend or profit evidence, and if you’re a contractor or freelancer, evidence of confirmed upcoming work can be useful to demonstrate future income.

  However, that’s why we’re here – we’ll walk you through the process and help you get the documents you need in good time. And you can even pop by our offices in Trowbridge to drop them off if that helps.

  One of the most common things we help people with – especially those newer to the world of self-employment – is making sure their income is accurate. This can cause issues when going direct to lenders, as some will assume the information is already correct.

  “Sometimes self-employed people don’t know their income at all,” says Kye.

  “We often say: ‘just send us your accounts, we’ll figure your income out for you.’”

  Daniel agrees: “We can usually tell if they’re not 100% sure of their exact figures.

  “We’ll get ahead of it and say: ‘do you want to send over the tax calculations and we’ll just take a look?’”