Self employed mortgages
Find out how to get a mortgage or remortgage when you're self employed, and how much you can borrow
The number of self employed people is growing. 15.1% of the UK workforce is self-employed. (1)
Lenders are getting better at dealing with self employed mortgages as a result.
It's harder to get a mortgage if you're self employed but you can still get one from many of the same high street lenders.
If you cannot get a mortgage on the high street, there are plenty of specialist lenders who will lend to you. Some have made this a key part of their mortgage offerings.
What is a self employed mortgage?
There are few mortgage products specifically for self employed people.
You’ll still take out the same mortgage as employed people but your income may be harder for lenders to get.
Self-employed income is likely to change. So lenders are more cautious when deciding how much mortgage you can afford.
Can I get a self employed mortgage?
For most lenders you only need to have been in an employed job for at least a month to get a mortgage.
Even if you're not in a permanent role but aim to start in the next 3 months if you have a contract of employment to prove it.
If you're self employed, they may ask you for up to three years of accounts. Some only demand two years, or sometimes one year’s full accounts. This should give you some options even if you're new to being self employed.
Some lenders will take your average income if looking at 2 or 3 years of your income.
Others base the largest amount on the most recent year of trading.
How much self employed people can borrow
The amount you can borrow depends on:
the size of the deposit
your credit history
The most you can borrow is usually around 4.5 or 5 times your annual gross income. This is the amount you earned before tax but after deductions and expenses.
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 to go up. This will not affect people on fixed rate periods.
What kinds of self employed applicants are there?
There are a few types of self-employed applicant. The type will affect how lenders calculate how much you can afford.
If you are a contractor, most lenders will analyse the total contract value or your rate per day.
If using your rate per day, they'll multiply this by five days a week and the number of weeks you’ve worked. This is usually around 48.
Some lenders treat contractors as directors of a self employed limited company, instead of looking at contract value or day rate.
For sole traders, lenders will analyse income using your declared taxable income.
They'll base this on your tax calculation, once known as your SA302, and the tax year overview.
Limited company director
For limited company directors, lenders will often look at salary and dividends. Others will look at salary and net profit. Net profits are often higher than dividends which are taken from net profits.
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 depends on the lender’s policy. You'll need evidence that you have two years of experience but some lenders may accept one year’s worth.
Employed vs self employed
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.
HM Revenue and Customs (HMRC) might see someone as self employed for tax reasons. Even if they're defined as self employed in employment law.
What documentation do I need for a self employed mortgage?
If you’re self-employed and wnat to apply for a mortgage, you’ll usually need:
two years' accounts for a limited company
two years accounts, 2 years' HMRC tax calculations (or SA302s) and tax year overviews for a sole trader and limited company
a track record of regular work. If there’s a drop in income, the lender will want to understand why
a good credit history (especially if you’re going with a high street lender)
a signed contract stating day rate for contractors
You can have your accounts prepared and certified by a chartered accountant. You may need this depending on the size and threshold of the company. Sole traders will often complete their own tax calculations and tax year overview.
What is an SA302 (tax calculation)?
When you apply for a mortgage a lender may ask you for your SA302 (tax calculations).
SA302s are being replaced by tax calculations. It's an HMRC certified document that gives evidence of self-employed earnings.
It summarises the income reported to HMRC. It's a certificate that documents how much income you’ve declared.
It allows lenders to confirm the income figure you’ve declared on your application.
If you have an accountant, they’ll usually complete one on your behalf.
If you file your own tax return online, you can find the SA302 in your HMRC online account and print one off.
If your lender will not accept printed documents, you can call HMRC on 0300 200 3300 and ask them to send one in the post.
Lenders now accept a tax computation if generated from an accounts system, so it does not have to be HMRC. But lenders can only accept tax year overviews from HMRC.
How can I increase my chances of getting a mortgage?
You key factors to increase the chances of getting a mortgage are:
You often need a deposit of at least 10% of the property value. Some lenders will allow a 5% deposit.
Having a strong credit history will also improve your chances.
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' as part of their calculation.
Speak to an expert
We recommend speaking to a mortgage broker who can assess your options.
Getting a mortgage if you're self employed does not have to be painful.
There are plenty of lenders who would be happy to lend to you.
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Your home could be repossessed if you don't keep up repayments on your mortgage.
You may have to pay an early repayment charge to your existing lender if you remortgage.
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(1) Office for National Statistics, January to March