Self Employed Mortgages Explained

A self employed woman at home on her laptop

It’s a common misconception that getting a mortgage when self-employed is on par with the Greek mythological labours of Hercules and you may think, if you work yourself, you have a better chance of winning the lottery than you do of getting on the property ladder!

However, whilst getting a self-employed mortgage is not quite as straightforward and simple as getting a mortgage when you’re an employed worker, it’s really not as complex and laboursome as you might think.

So sit back, relax and read our factual, myth-free, self-employed mortgage advice that tells you all you need to know,s including how to successfully apply for and get one.

How to get a mortgage when you are self-employed

Self-employed mortgage requirements are slightly different from employed mortgage requirements because when you’re employed, you will typically have a guaranteed monthly income which your employer can vouch for.

Whereas if you’re self-employed there is no concrete guarantee of a regular, monthly income, no one can vouch for it and your income can very often fluctuate.

To stand the very best chance of getting a self-employed mortgage application approved, you should:

Seek the professional services of a fully qualified, certified accountant to prepare your self-employed business accounts
Check your credit score and history is looking good and try to increase your credit score or remedy any patchy credit history before applying
Speak to a mortgage broker or adviser who has experience in successfully getting mortgages for self-employed workers
If you’re struggling to meet the eligibility criteria outlined below, consider applying to specialist self-employed mortgage lenders, applying for a Guarantor mortgage

What do mortgage lenders look for when a self-employed person applies?

Proof of income and expenditure

Self-employed mortgage lenders will predominantly be concerned with comprehensive and reliable proof of income together with evidence that you can afford to pay a mortgage by carefully scrutinising your income and expenditure.

The majority of lenders will require:

Accountant-certified accounts*
A copy of HMRC form SA302 or a tax year overview for 2+ years
Contractors only will need to provide evidence of forthcoming contracts
Company directors only will need to provide evidence of dividends or retained profits
Your last six months’ bank statements**

* Most mortgage lenders prefer to see accounts that have been prepared by a fully qualified chartered accountant.

** To check affordability, a mortgage lender will want to analyse your bank statements to see how much you’re spending every month and what you’re spending your money on.

Proof of ID and address

A lender will want official evidence of your identity together with proof of address and will require sight of an original:

Passport or Photocard Driving Licence
Council Tax bill
Utility bill that no more than 3 months old

Deposit and credit score

Self-employed mortgage applications will stand a much greater chance of success if you have a large deposit (say, 20% of a property purchase price or more) and a good credit score and history.

You should save up as much of a deposit as you can before applying for a mortgage and check your credit history with all the UK’s main credit reference agencies: Experian, Equifax and TransUnion.

You can get a free multi-agency credit report from checkmyfile.com - simply tap the button below to sign up to a 30-day free trial:

Check your score

Thoroughly study your credit report for any anomalies or outstanding debts you may have forgotten about. Remember, a lender will also be able to view all of this information and if you have a low score, a high credit utilisation and recently declined credit applications, they’ll consider you a credit risk and an unreliable borrower.

Self-employed mortgage rates

Mortgage rates for self-employed mortgages are normally the same as mortgage rates for employed workers’ mortgages.

However, if you do not fully meet all of the aforementioned eligibility criteria (i.e. have at least 2 years’ professionally audited accounts, a high enough income, low expenditure and a good credit score), then mortgages with higher rates of interest will usually be offered instead.

Without the assurances that all of the above information will provide to a lender, they will consider you a high-risk borrower and may decline your application.

Typical mortgage rates for most mortgages currently range from 1.2% to 3%.

Buying a house

The type of property you’re buying can influence a mortgage lender’s decision and they will usually be much more reluctant to offer you a mortgage if you’re buying an old, dilapidated or unusual property.

This is because a lender will want the assurance that should the worst happen and you default on your mortgage payments resulting in them repossessing your property, they will want a property that is easy to resell.

For example, a property that could be deemed difficult to sell is a flat above a shop or other type of commercial premises that could, for example, be susceptible to late-night disturbances or strong smells from hot food takeaways.

So buying a more mainstream [sellable] type of house that’s in good working order and in a popular residential area will increase your chances of mortgage success.

You may also be interested in: The stages of purchasing a house (UK)

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

Ideally, you should have been self-employed for at least two to three years to be in with a good shot of having your mortgage application accepted.

The longer you’ve been self-employed and the more established and successful your business, the more chance you have of getting a mortgage.

How many years accounts?

Most lenders require at least two years’ worth of Accountant-certified accounts.
If you have less than two years’ accounts BUT have a large deposit, a good credit history, a decent income and a low credit utilisation, then you could still get a mortgage.
If you cannot provide two years’ audited accounts, do not have a large deposit or a good income and credit history, you’re more likely to have your mortgage application declined or, if you are offered a mortgage, the choice will be limited and the interest rates higher than normal.
If you have less than two years trading and/or accounts, you should speak to a mortgage adviser about your options and consider applying to specialist self-employed mortgage lenders.

How much can a self employed person borrow for a mortgage?

Generally, if you meet a mortgage lender’s eligibility criteria, you can borrow just as much as an employed applicant which is usually up to 4.5 times your yearly salary.
Albeit much rarer, some lenders will let you borrow more than 4.5 times your salary - sometimes as much as 5 or 6 times your income! However, eligibility for this large amount of borrowing is pretty rare and is only offered by a small minority of niche mortgage lenders to a handful of eligible applicants.

You might also want to read: What to know before applying for a £250,000 mortgage

How much deposit do I need for a self-employed house?

If you meet all of the self-employed mortgage rules, the majority of mainstream mortgage lenders usually require a deposit equal to 10-20% of the purchase price of the house you wish to buy.
However, if you fail to meet the eligibility rules (i.e. you don’t have at least two years’ certified accounts), then many lenders will usually require a larger deposit of 20% or more.