Are you self-employed and thinking about buying a home or remortgaging? Don’t worry, it’s easier than you think! You’ll have access to the same range of mortgage deals as employed applicants, but the key difference is the documents you’ll need to show as proof of your income. This is where having an experienced mortgage adviser in your corner can really pay off. Our easy guide breaks down how to get a mortgage when you’re self-employed.

 

Am I self-employed? 🤔

Lenders generally consider you self-employed if you own more than 20% of a business that provides your main income. The three main types of self-employment are:

  • Sole trader – You’re the only person who owns and controls your business. You’re entitled to keep all profits after tax, but you’re also personally liable for all losses.
  • Contractor or freelancer – You provide your services or products to a client on a contract basis, for a set amount of time or a specific project.
  • Company director – You’re legally responsible for running the company, which is a separate entity. Your personal income is separate from the business – you pay yourself a basic salary, topped up with dividend payments. As part of this, you’re required to maintain accounts and records, pay corporation tax and inform shareholders if you might benefit from a transaction.

 

How do lenders assess affordability when you’re self-employed? 👀

Lenders have different criteria and ways of working out how much you can borrow, depending on your business setup. But as long as you can provide proof of your income, you should be able to apply for the same mortgages as anyone employed in a full-time, permanent role. Here’s what they’ll look at:

  • Sole trader – Lenders will focus mainly on your net profit over the past two to three years, taking an average of those figures to work out your income.
  • Contractor or freelancer – Lenders will usually take an average of your income over the past two to three years, but if you’ve had a particularly tough year, they might take the lowest figure as a baseline.
  • Company director – Lenders will look at your salary and dividends, or your share of net profit.

 

How long do you need to be self-employed for to get a mortgage? 📅

It’s usually best to wait until you’ve been self-employed for two years before applying for a mortgage, to prove you have a reliable source of income. If you’ve only been self-employed for a year, it’s still possible to get a mortgage, but your options might be more limited. Either way, it’s best to speak to a mortgage adviser about your options, to find out which lenders would be most likely to accept your application.

 

Which extra documents do you need to show? 📝

 

Be prepared to show at least two years of signed accounts, breaking down your income, expenses and operating costs. Ideally, these should be prepared and signed off by a qualified accountant. Depending on the type of self-employed applicant you are, you’ll also need to show these documents:

  • Sole trader – SA302 forms or HMRC tax year overviews for the past two to three years
  • Contractor or freelancer – Proof of upcoming contracts
  • Company director – Proof of dividend payments or retained profits

You’ll also need to provide the usual documents and statements that all applicants need to show, to prove your address, identity and deposit funds. Read our mortgage document checklist to get these together.

 

Tips to improve your mortgage chances 🌟

  • Save a healthy deposit – The bigger your deposit, the more options you’ll have when it comes to mortgages.
  • Get an accountant – This will give lenders confidence in your accounts.
  • Boost your credit rating – The higher your credit rating, the more attractive you’ll be to lenders, and vice versa. Check out our blog on how to improve your credit score for a mortgage.
  • Be prepared for questions – Make sure you can explain any dips in income or inconsistencies.
  • Get your finances in order – Clear any debt and cut back on unnecessary spending. Make sure your accountant doesn’t minimise your income for tax purposes, as this can affect how much you can borrow.

 

How to get a mortgage when self-employed 🤝

First, check you’ve got all the documents from the list above. Your next step is to speak to a mortgage adviser to find out exactly how much you can afford to borrow and which lenders are likely to accept your application. With Moneybox Mortgages, you can get access to thousands of mortgages from over 90 lenders! Our expert advisers will find and help you secure the right mortgage for you, whether you’re buying your first home, next home or remortgaging. Our mortgage service is completely free and we’ve received five star reviews on Trustpilot.

 

Your home may be repossessed if you do not keep up repayments on your mortgage.

You may have to pay an early repayment charge to your lender if you remortgage.

Moneybox Mortgages is provided by Moneybox Mortgages Ltd.