Mortgages For Self-Employed People

Being self-employed should never be a barrier to getting a mortgage, but there are times when it can make things more complicated. Luckily you’ve come to the right place if you trade this way and need to apply for home finance. In this guide, you’ll learn what your options are, how much you could borrow, and how to find the best mortgage deals for self-employed people like you.

Can you get a mortgage if you’re self-employed?

Yes. There are no mortgage lenders who will decline your application purely because you are self-employed, but it can sometimes be more difficult to get approved if you trade this way. For example, if you have been trading for less than two years or your income has fluctuated over time, you might find the number of approachable lenders is restricted.

As a self-employed professional, the mortgages you will be applying for are no different to those on offer to everyone else. There is no such thing as a ‘self-employed mortgage’, but some lenders are better equipped at catering for the needs of people who trade this way.

There will be several key differences in the way your mortgage application is assessed:

• Affordability will be based on average earnings over a 2-3 year period
• The way you need to evidence your income is different
• Some of the eligibility requirements are different

Since there can be extra hoops to jump through for self-employed people, speaking to a mortgage broker before you apply for home finance is recommended.

Requirements for self-employed applicants

As a self-employed mortgage applicant, most lenders will need you to meet the below criteria:

• Trading history: The majority of lenders will need you to have been trading in your current capacity for at least 2-3 years before they can offer you a mortgage
• Income stability: Some lenders might be reluctant to offer you a mortgage if your accounts show declining profits or a loss in the last year
• Proof of income: You will need two or more years’ accounts to evidence your income. You’ll also need SA302 forms or a tax year overview from HMRC covering the last 2-3 years. If you’re a contractor, the lender may request evidence of upcoming contracts, or review your dividend payments/retained profits if you’re a company director

The other requirements for self-employed mortgage applicants are generally the same as people who are in full-time employment. Read on for an overview of them…

How much deposit you will need

Deposit requirements for self-employed mortgages are no different than they are for anyone else. You can get approved with 5-10% of the property’s value to put down as a deposit, but a superior interest rate will likely be available if you can put down more than this.

Other requirements

Regardless of whether you are employed or self-employed, lenders will also look at the following factors when assessing your eligibility for a mortgage.

• Credit history: Clean credit will increase your chances of approval. Having bad credit is an added complication but it may still be possible to get approved, depending on the age and severity of the credit issue in question, as well as why it occurred.
• Age: Some lenders won’t approve you for a mortgage if you will be aged between 75 and 85 during the mortgage term, but there are specialist lenders for senior borrowers.
• Property type: Non-standard or unusual property types, such as anything that isn’t made from bricks and mortar, might require a specialist lender.

How your maximum borrowing will be calculated

Most mortgage lenders will look at your declarable income from the last 2-3 years and calculate an average figure based on that. This figure will then be multiplied by 4 or 4.5, in most cases, and the total will be the maximum you can borrow. Some lenders will, however, use a higher income multiple (up to 5.5-6 times salary) under the right circumstances.

What qualifies as ‘declarable income’ will depend on your trading style. Take a look at the table below to find out what type of income lenders generally accept for each one:

In addition to your main source of income, some lenders will also allow you to declare supplemental sources, such as bonuses, benefits or investment income. This can help you stretch your borrowing but not all lenders will let you declare 100% of a secondary income.

What if you have been trading for a year or less?

You can still potentially get approved for a mortgage if you are self-employed but only have accounts covering one year, but your choice of approachable lenders, rates and deals will be far fewer as the majority will be looking for at least 2-3 years’ trading history.

If you have only been trading a year, the lender who will accept this will base the affordability assessment on a multiple of your declarable income from that 12 months.

The table below shows roughly how many mortgage lenders you will have to choose from based on the amount of time you have been self-employed:

The information above was accurate at the time of writing (July 2024)

Those who have been trading less than a year will find it more difficult to get a mortgage, as there are no lenders who will allow you to complete on your mortgage until you have passed that 1-year milestone. There are, however, a minority of providers who will begin an application around the nine-month mark, with a view to completing after the year is up.

You should speak to a mortgage broker immediately if you are self-employed with less than two years’ accounts, as their knowledge, experience and lender contacts can help you find a solution. You should also seek professional advice if any of the below also applies:

• You have declining profits
• You made a loss in your last year
• Your income comes from non-standard sources (such as overseas payments)
• You want to borrow based on retained company profits

How to get a mortgage if you’re self-employed

Follow the steps below to get your mortgage application off to the best possible start:

Get your documents ready: You will need to produce as much certified accounting information as possible (covering three years if possible) or a SA302 tax document. You will also need proof of address, proof of ID and three months’ bank statements.

Download your credit reports: You can do this by signing up for a free trial on Checkmyfile. Make sure your files are up to date, and report it to the credit reference agencies if they are not - optimising your reports could mean landing a better deal.

Compare rates and speak to a broker: Once you have your documents ready, you can compare rates and products from across the market for free through Teito. When you’re done, one of our mortgage brokers who specialises in self-employed customers will review your case to help you get the best deal - get started below:

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Are mortgage rates higher for self-employed borrowers?

No. Mortgage interest rates are not determined by your employment situation. The rate you will end up with will depend on how much deposit you have, your credit situation and the type of mortgage you choose. Being self-employed can, however, have an indirect effect on rates.

If there are any risk factors attached to your employment history, such as having limited trading history, declining profits or a loss in the last year, the number of lenders and deals available will be fewer, which means that the best rates will be more difficult to come by.

This is why using a mortgage broker is recommended under these circumstances, as they can open you up to a wider range of lenders who specifically cater for the self-employed.

Who are the best mortgage lenders for self-employed applicants?

Most UK mortgage providers will lend to self-employed people, but the number of available lenders will drop off if you have less than two years’ accounts, or your income is unstable.

Some lenders are more flexible than others when it comes to mortgages for the self-employed, as there are those which specialise in borrowers with complex income and limited proof of it.

You will find some examples of these lenders below:

• Aldermore: Will potentially lend to self-employed borrowers with just one year’s accounts, but will carry out additional checks to ensure their employment situation is stable, and confirm that they have had no adverse credit in the last three years.
• Halifax: Prefer two years’ trading but will consider lending to borrowers who have only been trading for one. Accounts is Halifax’s preferred form of income verification, but they may request additional information under these circumstances.
• Barclays: Will let limited company applicants borrow based on retained profits, but the amount they can declare cannot exceed five the average of (salary plus dividends) paid to the applicant(s) over the last two years, as evidenced in their latest two tax returns.
• Bluestone: Will lend to borrowers with declining profits as long as there is a good explanation for why they are declining and future income is sustainable.

The above is merely a snapshot of a vast market for example purposes. You can compare rates and deals from these lenders and more for free through Teito - get started here.

Can you get a buy-to-let mortgage if you’re self-employed?

Yes. The only real difference here is that affordability will be assessed based on the amount of rent you can generate. Most buy-to-let lenders will need the projected rental income to be 125-145% of the monthly mortgage payments, in order to approve your application.

Your self-employed status might only be an added complication if the lender wants to assess your personal income as well. Some buy-to-let mortgage providers will expect you to have personal income of at least £25,000 per year, as well as guaranteed rental income.

Your application is likely to be viewed more favourably if you are an experienced landlord or have a strong track record in the property industry.

Can you get approved with bad credit?

Yes, but it will depend on the type of bad credit you have. Minor issues such as late payments are easier for mortgage lenders to accept than severe credit problems, like bankruptcies. Your lender will also be more forgiving if your bad credit occurred a long time ago (3-6 years).

It can be harder to get a mortgage with severe or recent bad credit, especially if there are also risk factors around your employment. For example, if you only have one year’s accounts and adverse credit, you may be limited to specialist lenders, as you fall into two niche categories.

This could mean that you can only be approved for a mortgage at a higher interest rate or with higher deposit requirements. You will stand the best chance of being approved and securing a favourable interest rate if you speak to a mortgage broker before you apply.

Why use Teito for your mortgage needs?

You can compare rates and deals for free through Teito and access support from a mortgage broker who specialises in securing finance for self-employed individuals.

Here are just some of the reasons why self-employed mortgage applicants choose us:

• Exclusive rates and deals are available
• Our mortgage brokers have access to the entire market
• We are five-star rated on leading review websites
• You can secure an agreement in principle in minutes

Ready to compare rates and deals and take advantage of a free, no-obligation chat with a mortgage broker who specialises in self-employed borrowers? Get started here.