Tired of banks turning you down because you’re self-employed?
You’re not alone. Many of Britain’s 4.3 million self-employed workers face extra hurdles when applying for mortgages, particularly from high street banks who often struggle with anything beyond standard PAYE income.
But here’s the good news: self-employed people absolutely can get mortgages.
Whether you’re a sole trader, limited company director, or contractor, lenders will consider your application. You’ll simply need to prove your income differently from someone in regular employment.
Understanding Self-Employed Mortgages
For mortgage purposes, you’re considered self-employed if you are a sole trader, freelancer, contractor or own 20-25% or more of a business. This includes partnerships and limited company directors. Each business structure needs different evidence to prove income.
Many lenders have updated their criteria recently, recognising that self-employed income patterns have changed.
Some now only want one year’s accounts, though most still ask for two or three years. What matters most is showing your income is sustainable.
How do they work?
A self-employed mortgage works exactly like any other mortgage – you borrow money to buy property and repay it with interest each month. The difference lies solely in how you prove your income to the lender.
Lenders typically offer 4-5 times your annual income, just like with standard mortgages. Company directors might find some lenders include retained profits in this calculation, potentially increasing borrowing power.
Your deposit also affects how much you can borrow.
While 95% mortgages exist, having a 15-20% deposit gives you access to better rates and more lender options. Some lenders ask self-employed applicants for slightly larger deposits to offset what they see as higher risk.
How Different Business Types Are Assessed
Sole traders need to understand that lenders use net profit, not turnover.
Say your business makes £85,000 annually but claims £35,000 in expenses – lenders will assess you on £50,000. Many business owners get caught out here because they’ve minimised profits for tax purposes.
Limited company directors face more complex assessments.
Most lenders combine salary and dividends. For example, someone taking a £12,500 salary plus £37,500 dividends would be assessed on £50,000. Some specialist lenders now consider retained profits too – particularly helpful if you keep money in the business for cash-flow.
Contractors often receive more favourable treatment, especially in sectors like IT, engineering, and medicine. Rather than looking at company accounts, many lenders calculate income using your day rate. A contractor earning £400 daily could be assessed on £92,000 yearly (£400 × 5 days × 46 weeks).
Read more: Is a self-employed mortgage based on gross or net profit?
Essential Documentation Needed
Getting a mortgage offer depends heavily on your paperwork. You’ll need:
SA302s and tax year overviews from HMRC showing declared income. Most lenders want the last 2-3 years.
CIS subbies can take advantage of their CIS status and apply for a CIS mortgage. A CIS mortgage is calculated using your gross CIS income, rather than the net figure that shows on an SA302.
Company accounts prepared by a qualified accountant (look for ACCA, ICAEW, or CIMA qualifications).
Business and personal bank statements proving regular income. Keep these accounts separate – mixing business and personal spending complicates applications.
Evidence of upcoming contracts or work, particularly important for contractors and freelancers.
Making Your Application Stronger
Timing significantly impacts success rates.
Avoid applying during seasonal quiet periods or just after major business changes. Build a solid deposit – while 95% mortgages exist, having 15-20% down gives you far more options.
Your credit profile needs attention too. Check your report before applying – even small issues like late mobile phone payments can cause problems. Ensure you’re on the electoral roll at your current address.
Many applications face challenges around recent business changes. Perhaps you’ve incorporated your sole trader business, or profits dipped before recovering. Specialist lenders often take a more nuanced view of these situations.
Read more: How to get mortgage ready
Finding Suitable Lenders
High street banks typically struggle with self-employed applications – their automated systems prefer straightforward PAYE cases.
Specialist lenders better understand business finances and take a more personal approach to assessment.
Some lenders specialise in particular business types. Metro Bank, for instance, often considers applications just one year after starting trading. Precise Mortgages frequently accepts retained profits for company directors. Kensington Mortgages regularly works with contractors.
Practical Steps Before Applying
Start preparing months before you need the mortgage.
Organise business records and ensure accounts are up to date. Consider your company structure – sometimes small changes to how you take income can significantly improve borrowing potential.
Remember that any business changes need commercial sense – don’t just adjust things for the mortgage application.
Work with your accountant to balance tax efficiency against mortgage affordability.
Where possible, avoid applying for any new credit in the 3-6 months prior to needing a mortgage.
Professional Support
Self-employed mortgages require more work than standard applications.
A broker who regularly handles self-employed cases will know which lenders suit your situation. They’ll help present your application effectively, explaining business models and income patterns to lenders.
Your accountant plays a vital role too. Beyond preparing accounts, they can advise on business structures and income patterns that appeal to lenders while remaining tax-efficient.
Taking Action
Being self-employed shouldn’t prevent you getting competitive mortgage deals.
Yes, you’ll need more documentation than PAYE employees. But with proper preparation and professional help, you can access a wide range of mortgages.
The key lies in working with professionals who understand self-employed lending.
They’ll guide you through the process and match you with lenders who appreciate modern business structures. Why not speak with a specialist broker about your circumstances? They can review your situation and outline your options without obligation.
Frequently Asked Questions
It’s fair to say that the longer you can show a track record, the more options you have.
Most lenders want to see at least 2-3 years of accounts, but some specialist lenders will consider applications after just one year of trading. A larger deposit and strong credit history can help if you’ve been trading for a shorter time.
Most lenders take an average of your last 2-3 years’ income. Some use the latest year if it’s lower, or the lowest year if income varies significantly. Specialist lenders might consider projected income with evidence of secured contracts.
Yes. Many lenders have specialist contractor mortgages, particularly for IT, engineering, and professional services. They often calculate income using your day rate rather than accounts, making it easier to prove affordability.
This can also include mortgages for CIS workers, where the mortgage is calculated using your gross rates.
Most lenders consider both salary and dividends when assessing income. Some also look at retained profits. It’s helpful to work with a lender that appreciates your overall earning potential more than how you extract money from the business.
Many lenders treat umbrella company contractors similarly to employed applicants, making the process simpler. You’ll need to show consistent contract history and income.
Brokers who specialise in self-employed mortgages know which lenders suit different business structures. They can present your application effectively, explain complex income patterns, and often access exclusive deals.
Prior to 2011 self-cert mortgages were a popular choice for self-employed borrowers. These essentially allowed you to self declare your income!
After being heavily abused, the Financial Services Authority effectively banned them.
Mortgage lenders now need to see proof of your income and check that the new mortgage is affordable.
There are a small number of lenders that offer non-status bridging loans. These are un-regulated loans that do not require income or credit checks.
