Self Employed
Millions in the UK are self-employed, a crucial pillar of our economy. Despite its many perks, securing a mortgage can be challenging for the self-employed.
How Much Can You Borrow If You’re Self-Employed?
You can usually borrow between three and five times your share of the business’s net profit (with some lenders considering higher multiples) plus any salary or dividends. Lenders will assess factors like:
- Retained profit in a limited company
- Dividends or salary from your business
- Declared income on SA302 forms
Tips to Improve Your Self-Employed Mortgage Application
Applying for a mortgage when you’re self-employed may be more challenging, but there are steps you can take to improve your chances:
- Save for a Larger Deposit: A bigger deposit can help you secure better deals and access more lenders. A small deposit may limit your options and result in higher interest rates.
- Organise Your Documents: Gather your SA302 forms and Tax Year Overviews and make sure your accounts are up-to-date. Having these documents ready will streamline your application process.
- Check Your Credit Rating: Before applying, check your credit score and correct any errors. Improving your credit rating may unlock better mortgage deals.
- Maintain a Consistent Business Model: Lenders value stability. Avoid making major changes to your business model before applying for a mortgage, as it may complicate the assessment process.
-
What is Considered Self-Employed by Lenders?
Most lenders classify you as self-employed if you own more than 20% of a business that generates your main income. You’ll need to be registered as a sole trader, contractor, or limited company, and submit accounts to HMRC.Do Self-Employed Applicants Pay Higher Rates?
Self-employed individuals are eligible for the same mortgage rates as employed applicants. You may face higher rates if you have a small deposit or poor credit, but this is due to risk factors, not employment status.
Your home (or property) may be repossessed if you do not keep up repayments on your mortgage or any other debts secured on it.
Self-Employed Mortgages
Being self-employed doesn’t mean you can’t get a mortgage. While the assessment process is slightly more complex, if you’ve been trading for at least a year, you’re eligible to apply. You’ll need to provide documents like tax returns and accounts, which we’ll explain further in this guide.
Can You Get a Self-Employed Mortgage?
There isn’t a specific mortgage product for the self-employed. You have access to the same mortgages as employed individuals. However, mortgage lenders assess self-employed applicants differently.
What Do You Need for a Self-Employed Mortgage?
In addition to standard mortgage documents like bank statements, proof of identity, and address, self-employed applicants will need:
- Company Accounts: Most lenders require at least two years of company accounts, though some accept just one year. Having three years of accounts, verified by an accountant, will give you access to more lenders.
- SA302 or Tax Overview: If you file a self-assessment instead of company accounts, lenders will require your SA302, showing your yearly income and tax paid.
How Do Lenders Assess Self-Employed Applicants?
Lenders assess self-employed individuals based on their business structure. Here’s how different business models are assessed:
- Limited Company Directors: Affordability is calculated based on your salary and dividends. Lenders may also consider your company’s net profit if you’re looking to borrow more than your dividend income.
- Business Partners: If you’re in a partnership, lenders will assess your share of the company’s profits. You may need to provide evidence of your shareholding.
- Sole Traders: Lenders typically review your SA302 tax returns and average your income over the last 2-3 years to assess affordability.
- Contractors: If you’re working as a contractor, you’ll need to show evidence of future contracts and minimal gaps between jobs.
