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How to get a mortgage when you're Self Employed

How to get a mortgage when you're Self Employed

By
Samantha Partington
Last Updated 30 August 2023

Self-employed and looking for a mortgage? Here's everything you need to know about getting on the property ladder when you work for yourself.

In this guide

When you become self-employed you expect to face challenges like applying for a bank loan or landing your first big contract.

What you probably didn’t expect is that it can be more difficult getting a mortgage. In fact, 7 in 10 freelancers who now own a home said at least one lender turned them down for a mortgage because of their self-employed status, while a quarter said they found the process daunting.

But getting a mortgage when self-employed needn’t be scary if you understand what mortgage lenders are looking for.

Here’s what you need to know about how to get a mortgage when you're self-employed:

How do mortgage lenders define self-employed?

A mortgage lender will class you as self-employed if you own more than a 20% - 25% share of a business where your earnings come from, or you’re a sole trader, a partner, director or contractor.

Can self-employed people get a mortgage?

Yes, it is possible for those who are self employed to get a mortgage. All mortgage lenders offer mortgages to self-employed borrowers but some are more keen than others. If you work for yourself, you may find that you’re excluded from some lenders’ first-time buyer schemes that allow you to stretch your income or put down a smaller house deposit. Some of the high street banks and building societies also reserve their riskiest mortgages (like those that only require a 5% deposit) for employed applicants only. 

Also, your self-employed status affects how a mortgage lender will assess your income. Typically, mortgage lenders will offer you a mortgage that's between 4 to 4.5 times your household income, but they could offer you less if you are self-employed depending on what evidence of your income you can supply. To work out your mortgage affordability, a mortgage lender will look at various factors including your credit history and income.

What is mortgage affordability?

Is it harder to get a mortgage if self-employed?

If you’re self-employed, in theory you have access to the same range of mortgages as everybody else. However, in order to qualify for a mortgage you’ll need to pass the lender’s affordability checks. This can make it harder to get a mortgage if you're self-employed because you'll need to provide more evidence of your income than employed applicants.

How many years do you have to be self-employed to get a mortgage?

Self-employed mortgage applicants sometimes have to provide 2-3 years worth of accounts to prove their income. A lender might also use your most recent profit figure to assess your mortgage affordability instead if it's lower. Sole traders will be asked for a Self Assessment Tax Calculation (SA302) form, as well as a tax year overview and your latest three months’ business and personal bank statements.

How is self-employed income calculated for a mortgage?

When you're self-employed, mortgage lenders will normally use the figures you've submitted for your tax returns or company accounts to calculate income. They'll then calculate what you can borrow for a mortgage using this figure.

How much can I borrow for a mortgage if I'm self-employed?

With a standard mortgage, lenders typically let applicants borrow up to 4.5 times their income, but how much you'll be offered for a mortgage when you're self-employed depends on your affordability. Lenders use different income calculations to work out what you can borrow depending on your type of self-employment. If you are a sole trader, you’ll be judged on your latest two years’ net profit before tax. Contractors provide their weekly earnings and lenders typically multiple those earnings by 46 weeks. Limited company directors are allowed to use their salary and dividends, but not retained profits or directors’ loans. 

If you are employed and have just received a big pay rise, your mortgage lender will often be happy to let you use your new higher salary to support your application.  For the self-employed, a sudden rise in profits is unlikely to score any points with a high street bank. 

Instead, they will calculate your average profit from the last two years or use your most recent profit figure if it’s lower. Your profits would have to remain consistently high for two years running to be acceptable to the bank. 

Luckily, there are ways to increase what you can borrow - for example, with an Income Boost, you can add a loved one's income to your mortgage application to increase your total income. They'll act as a guarantor on the mortgage, which means they'll have no equity in the property, but will be required to step in if you cannot make the monthly repayments. By adding their income to yours, you can borrow more for a mortgage, which could help you get on the ladder sooner.

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Top Tip

If you’re self employed, the bigger the house deposit you can put down, the more likely you are to get accepted for a mortgage. 

Having trouble being accepted for a mortgage?

At Tembo, we specialise in increasing our customers' affordability, so they can get on the ladder sooner or even afford more. To see how we could help you boost your buying budget, create a free Tembo plan today.

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How to get a mortgage when you're self employed:

To get a mortgage when you're self employed, you will need to follow the below steps:

1) Gather evidence of your income

Depending on your type of self employment, you'll need to provide different types of evidence of income to a mortgage lender to get a mortgage from them. For example, sole traders will be asked for a combination of Self Assessment Tax Calculation (SA302) forms, a tax year overview and your latest three months’ business and personal bank statements depending on the lender. 

Limited company directors must submit their last two years’ finalised accounts, the latest of which cannot be older than 18 months when you apply for a mortgage (an accountant’s certificate is sometimes acceptable). While contractors must provide their latest four weeks’ payslips and a copy of their contract.

If you're struggling to get a mortgage on your current salary, we can help.

2) Ensure your credit score is tip top

Just like an employed borrower, having a clean credit history and good credit score is essential to getting a mortgage when you're self-employed, especially if you want to secure a low interest rate. Before you apply for a mortgage, it's worth using a service like CheckMyFile to check your credit report across the three main referencing agencies. That way, you'll be able to spot any credit issues which need addressing before applying.

Want to know why credit is so important when trying to get on the ladder? Read our blog for the lowdown.

3) Save as big a deposit as possible

Having a large house deposit saved up will open up better mortgage deals for you to choose from, which can help increase your chances of getting a mortgage when self-employed.

If you're struggling to save for a house and have a home-owning family member who wants to help you buy, it's worth looking at a Deposit Boost. This is a way for your loved one to unlock money from their money to gift to you to top up your house deposit, or boost your current savings.

See what you could be offered today

On average, our customers boost their buying budget by £82,000. To see how our award-winning team could help you get on the ladder sooner, create a free Tembo plan for a personalised recommendation. You can then book in a free, obligation call with one of our mortgage advisors.

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