Getting a self employed mortgage

You can get a mortgage if you’re self employed but it can be harder. 

You can still apply for a normal mortgage and get the same deals as people who are employed.

You’re more likely to get a good deal if you:

  • earn enough and can prove how much you earn

  • have a good sized deposit 

  • have a good credit rating

The number of self employed people is growing, 15.1% of the UK workforce is self employed.¹

There are more restrictions for self employed people due to coronavrius.

When you apply for a mortgage you need to prove how much you earn. This is harder if you’re self employed.

As your situation is more likely to change, it’s a bigger risk for lenders to lend to you. 

It’s harder to work out how much you can afford because your:

  • income is harder for lenders to get

  • income is likely to change

  • job is less secure

You can get a mortgage from high street lenders. 

But if you're finding it hard, there are some some lenders who will lend to you.

A mortgage broker like Trussle may be able to help you find a lender that's more likely to lend to you.

Who can get a self employed mortgage?

Different lenders have different criteria that they’ll look at when deciding if they’ll lend to you. 

The chances of you being accepted are higher if you have your documents and proof ready.

Most lenders can help you get a mortgage if you:

  • have been in a job for at least 2 years

  • are self employed and have up to 2 years of accounts. Some may ask for 2 or 1 year of full accounts²

If you’ll be accepted depends on the lender’s criteria and the proof of income you have. 

If you apply for a mortgage with Trussle, our expert advisers will guide you through your lender’s requirements. 

The type of applicant you are will affect how lenders work out how much you can afford. 

Contractor

If you’re a contractor most lenders will:

  • analyse the total contract value or your day rate

  • times the day rate by 5 days a week and the number of weeks you’ve worked. This is usually around 48

Instead of looking at contract value or day rate, some lenders treat contractors as directors of a self employed limited company. 

Some lenders will still lend to you if you:

  • have gaps between contracts. But the fewer and shorter gaps you have, the more lenders you’ll have to choose from

  • have contracts under a certain value such as £50,000

  • do not have a contract end date as long as you have a 12 month record. More lenders will lend to you if you have an end date

Sole trader

Lenders will analyse income using our declared taxable income. 

They base this on your tax calculator, and tax year overview. 

Limited company director 

For limited company directors, lenders will look at either:

  • salary and dividends

  • salary and net profit

Net profits are often higher than dividends which are taken from net profits. 

Some lenders will consider your share of the company profits. 

Employed

Some lenders will consider any extra cash you earn as a freelancer or from a part time job when deciding how much to lend.

You must back this up with evidence and it’ll depend on the lender’s policy. 

You'll need evidence that you have 2 years of experience. But some lenders may accept 1 year’s worth.

Freelancers and contractors often fall between employed and self employed status.

This status is often based on how you pay your tax.

Employed workers are often paid through PAYE, where they take your tax away from your pay cheque.

Self employed workers will often fill out tax returns every year.

Find your employment status

How much you can borrow

If you meet the lender’s criteria, you can often borrow 4.5 to 5 times your total yearly income depending on your financial situation. 

This is how much you earned before tax but after any expenses.

The amount you can borrow depends on:

  • the size of the deposit

  • your credit history

  • income

  • outgoings

See how much you could borrow

When lenders are working out how much you can afford to borrow they will review your income. 

They’ll either base it on: 

  • your average if looking at 2 or 3 years of your income

  • the largest amount on your most recent year of trading

If you’re a limited company, your lender will look at your salary and dividends or share net profit. 

If you’re a contractor, lenders will consider your annual day rate. 

The lender will make sure you can still afford to repay your mortgage if the Bank of England base rate rises. This would make mortgage interest rates go up if you’re not on a fixed rate.

Preparing your self employed mortgage documents

If you’re self employed and want to apply for a mortgage, you’ll usually need:

  • 2 to 3 years of accounts (if you’re a limited company)

  • 2 years' HMRC tax calculations (SA302s) and tax year overviews (if you’re a sole trader or limited company)

  • a current and previous signed contract stating day rate (if you’re a contractor). If you do not have one, you could use your personal tax return or company accounts

  • a record of regular work. If there’s a drop in income, the lender will want to know why

  • a good credit history (especially if you’re going with a high street lender)

You can have your accounts prepared and certified by a chartered accountant. 

If you're thinking about getting a mortgage, tell your accountant a year before so they can make sure your accounts are in order.

Sole traders will often complete their own tax calculations and tax year overviews.

When you apply for a mortgage a lender may ask you for your tax calculations.

SA302 tax calculations are a HMRC certified document that proves your earnings if you’re self employed. 

It summarises the income you report to HMRC.

Lenders use it to confirm the income on your application. 

How to get your SA302

If you have an accountant, they’ll usually get it for you. 

If you file your own tax return you can find it in your HMRC online account and print it out.

If your lender will not accept a print out, you can phone HMRC on 0300 200 3300 and ask them to send one in the post. 

Lenders now accept tax calculations if they come from an accounts system, so it does not have to be HMRC. But they only accept tax year overviews from HMRC.

Improve your chances of getting accepted

If you’re self employed, you’ll need to provide more information when you apply for a mortgage. This is to prove to lenders you can afford to pay it.

Often, the more years of proof of income you provide the better.

You can improve your chances of getting a mortgage if you have:

  • a bigger deposit. Ideally at least 15%

  • a good credit score

  • a healthy and regular income 

  • been trading for a couple of years before you apply

Not having the ideal situation does not mean that you cannot get a mortgage. It may just mean there are fewer deals available to you. Or that you need to find a lender with more flexible criteria.

Some limited company directors keep some of the business profits instead of taking it as salary and dividends. 

In this case, it’s best to find a lender that considers ‘retained earnings’ in their calculation. 

You need to provide more documents for your mortgage application if you’re self employed. 

You can increase your chances of getting accepted if you:

  • provide all the information the lender needs as soon as they ask for it

  • keep your business paperwork, accounts and electronic record up to date

  • keep your accounts and taxes organised. An accountant can help you do this 

It’s even more important to be in charge of your finances if you’re self employed and looking to get a mortgage.

Check your credit report and make sure you’ve paid off everything you owe and close any accounts you no longer use. 

It’s a good idea to keep track of your spending habits the year before you apply. You can save money and show you’re responsible by reducing your spend on things you might not need.

There are mortgage brokers who can help you through the process.

Brokers can help you:

  • understand your options

  • understand what documents different lenders ask for

  • find a lender that’s best suited to you

  • know if you’re likely to be accepted before you apply. This can help you avoid being rejected for a mortgage which would impact your credit report

Support for self employed people

Many self employed people worry about being able to pay their mortgage. 

We found that self employed people were most worried about:

  • not being able to afford the repayments

  • not being able to get a mortgage

  • the interest rate

  • having limited mortgage options

  • not being able to borrow enough

  • income security

If you’re having trouble paying your mortgage contact your lender before you miss any payments. 

They’ll be able to guide you through your options and may suggest:

  • extending your mortgage term

  • switching to an interest only mortgage so you pay less each month if your lender allows you to

  • changing your payment plan for an agreed time

  • a mortgage payment holiday

Making overpayments

If your income changes often, you can ask your lender if you can make overpayments

This will let you pay more for an agreed number of months or make a lump sum overpayment. 

So if you start a new contract you can overpay during the time your income is stable.

This could give you some flexibility when you come to the end of a contract but do not have your next one lined up.

One of the biggest concerns for self employed people when applying for a mortgage is what happens if your situation changes. 

Being self employed can mean your job is less secure or your income is less stable. 

If you’re worried about your situation changing you may want to consider mortgage or income protection insurance. 

Income protection insurance can cover you if you:

  • lose your job

  • get ill

  • get injured

  • lose your business

Income protection would help you pay your mortgage and bills if your income is affected. 

You can still get a mortgage if you’re self employed but there are even fewer deals due to coronavirus. 

It’s likely you’ll have to put down a larger deposit to be accepted. 

Find out how mortgages have been affected by coronavirus

If you have a mortgage and are worried about affording your repayments visit GOV.UK to find and apply for government support.

Impact of government financial support on your chances of getting a mortgage

The financial conduct authority says that using government support should not stop self employed people from being able to get a mortgage.³

If you’re struggling to pay your mortgage you can also check what government support you may be able to get on GOV.UK. 

You may be able to get:

  • support for mortgage interest (SMI) if you claim a benefit like Income Support or Universal Credit

  • a grant or financial support if you’re getting less or no work because of coronavirus

White male

Apply with Trussle and we'll guide you through the process

We're here to help you get a mortgage, even if you’re self employed. 

We’re more likely to be able to help if you have been self employed for at least a year. 

Our expert advisers will guide you through the mortgage process and let you know what your lender needs. 

Sources

¹Office for National Statistics, January to March

² Which, How Coronavirus has affected mortgage options for self employed people, July 2020 

³ iNews, Leading UK banks refusing mortgages to self employed workers if they took out Covid loans,  Jan 2021

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