Self employed mortgage

Being self-employed has numerous advantages, but there’s always a chance that business may fluctuate. In other words, you may not earn a regular income.

Some mortgage lenders will be more cautious about lending money to those who are self-employed. But, in reality - provided that you have a decent sized deposit, a strong credit rating, and at least two years of accounts showing you have a steady and consistent income - there’s no reason at all why you should struggle to get a mortgage.

What is a self employed mortgage?

There aren’t specific self-employed mortgage products. Self-employed workers such as freelancers, contractors, and small-business owners will have access to the same financial products (including interest only mortgages) as those who are employed in the more traditional sense.

For some lenders, those who are employed will need to have been in a job for a minimum of six months in order to obtain a mortgage.

With self-employed people, a longer period of income proof is required so that both you and the lender can get an accurate picture of your income and outgoings. This is usually two years in the majority of cases, but some will ask for three years and some may lend based upon one year.

What documentation do I need for a self employed mortgage?

If you’re self-employed and wish to apply for a mortgage, you’ll usually need the following:

  • Two years' accounts for a limited company (or 2 years' HMRC SA302s and tax year overviews for a sole trader)
  • A track record of regular work (if there’s a decline in income, the lender will want to understand why)
  • A good credit history

A lender will usually determine how much to lend by basing their calculations on your average income over the past two/three years. This is why it’s key to have your accounts prepared and certified by a qualified or chartered accountant.

What is an SA302?

When applying for a mortgage, you might be asked for your SA302.

An SA302 is an HMRC certified document that gives evidence of self-employed earnings. 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 won't accept printed documents, you can call HMRC on 0300 200 3300 and ask them to send one in the post.

The SA302 summarises the income reported to HMRC and is effectively a certificate that documents how much income you’ve declared. It’s a simple way for lenders to verify the income figure you’ve declared on a mortgage application.

How much can I borrow for a self employed mortgage?

The amount that a person can borrow depends on several factors:

  • The size of the deposit
  • Credit history
  • Income
  • Outgoings
  • Property type

The maximum amount that can be borrowed is usually around 4.5 times the annual gross income (i.e. the amount earned before paying tax), depending on circumstances.

Self-employment suggests that income is likely to fluctuate to some extent. Most lenders will take an average income figure based upon the last two or three years and use that to work out how much they’re prepared to lend. Others might look at the most recent year of trading and base their maximum advance on this.

How can I increase my chances of getting a mortgage?

For all applicants, the main factors that will increase the chances of getting a mortgage are deposit size, credit history, and income. If you’re self-employed, these can be especially important.

Having a deposit of at least 10% of the value of the property is generally required, but some lenders will allow a 5% deposit - and if partnered by a strong credit history should serve to improve your chances.

If you’re a director of a limited company and keep some of your profits in the business as opposed to taking it all as salary and dividends, you’d benefit from finding a lender who will take these 'retained earnings' into account as part of their calculations.