The simple answer is yes.
One of the biggest myths we hear is that getting a mortgage is much harder if you work for yourself.
The reality is that thousands of self-employed people buy homes or remortgage every year. Whether you’re a sole trader, partner in a business, contractor or a limited company director, there are plenty of lenders willing to help. The difference isn’t usually whether they’ll lend, it’s how they assess your income.
First things first…
When people talk about “self-employed mortgages“, there isn’t actually a special mortgage product.
You’ll generally be applying for the same mortgages as employed applicants. The difference is that lenders often need a little more information to understand how your income is generated and whether it’s sustainable.
Who does this apply to?
You might fall into this category if you’re:
- A sole trader
- A partner in a partnership or LLP
- A contractor or freelancer
- A limited company director with a significant shareholding
It’s worth mentioning that, legally, a limited company director isn’t usually self-employed. However, many mortgage lenders assess directors with a significant ownership stake using criteria similar to self-employed applicants, so the documents and income assessment can differ from someone employed on a standard PAYE salary.
Is it harder to get a mortgage?
Not necessarily.
The challenge isn’t usually your employment status, it’s proving your income.
If you’re employed, a lender can often assess your affordability using recent payslips and a P60.
If you’re running a business, your income may fluctuate from year to year, so lenders need to build a picture of how your business is performing.
That’s why they’ll often ask for additional evidence before making a decision.
How do lenders assess self-employed income?
This is where things become interesting.
Not every lender looks at self-employed income in the same way.
For example:
Sole traders
Many lenders will look at your net profit rather than your turnover.
Partnerships
They’ll usually assess your share of the business profits.
Limited company directors
Some lenders use salary and dividends, while others may also consider your share of the company’s profits or retained profits. That difference alone can have a significant impact on how much you may be able to borrow.
This is one of the reasons why independent mortgage advice can be so valuable. Knowing which lenders assess income in the most suitable way for your circumstances can make a real difference.
Do I need two years’ accounts?
This is probably the question we’re asked most often.
Many lenders prefer to see two years’ trading history.
Some may require longer.
However, there are lenders who will consider applications with just one year’s accounts, depending on the strength of the overall application and your individual circumstances.
So don’t assume that because you’ve only recently become self-employed, buying a home has to wait.
What documents might I need?
Every lender is different, but you may be asked for:
- SA302s and Tax Year Overviews
- Business accounts
- Personal bank statements
- Proof of identity and address
- Information about your business
- Details prepared by your accountant, if required
Having these ready can often help the application progress more smoothly.
What if my income changes each year?
That’s perfectly normal for many businesses.
Lenders understand that profits can rise and fall.
Some may average income over a number of years, while others place more emphasis on the latest year’s figures or the overall trend.
Again, this varies from lender to lender.
Common misconceptions
“I need a huge deposit.”
Not necessarily.
Many self-employed applicants can access the same loan-to-value products as employed borrowers, subject to affordability and lender criteria.
“My bank has already said no, so nobody will help.”
Every lender has different criteria.
One lender declining an application doesn’t automatically mean another lender will reach the same conclusion.
“Self-employed people always pay higher mortgage rates.”
Generally speaking, no.
If you meet a lender’s criteria, you’ll usually have access to the same products as other applicants.
Our advice
If you’re self-employed or you’re a limited company director who isn’t sure how a lender will assess your income it’s worth speaking to a mortgage adviser before submitting an application.
A quick conversation can often identify:
- which lenders are most likely to suit your circumstances
- what documents you’ll need
- any potential issues before they become problems.
It can save time, avoid unnecessary credit searches and help ensure you’re applying to the most appropriate lender first time.
Final thoughts
Being self-employed shouldn’t stop you from buying your next home.
Yes, the process is often a little different, but with the right preparation and the right advice, there are many lenders who are happy to consider self-employed applicants.
Every business is different, every lender is different, and every mortgage journey is different too.
If you’d like to understand your options, arrange a no-obligation chat with a self employed mortgage broker at RH Mortgage & Financial Solutions and we’ll help point you in the right direction.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP PAYMENTS ON YOUR MORTGAGE.