Self-employed mortgage: how to get a mortgage when self-employed

The self-employed often face more obstacles when applying for a mortgage, but securing one isn’t impossible. Here’s our guide on how to get a mortgage when self-employed.

• How to register as self-employed with HMRC
• A guide on how to become a freelancer in the UK
• How to budget: a budget calculator for the self-employed
• Do I need business insurance?

When employed people apply to borrow money for a mortgage, they have the security of a regular monthly payslip. Their employer usually needs to verify the income that they put on their application.

But when it comes to a mortgage for self-employed people, lenders usually ask to see much more evidence to back up your income. That’s because you won’t have the security of an employer reference.

That being said, self-employed mortgages aren’t necessarily different products with different rates – and there are ways to make your application more attractive to lenders.

Getting a mortgage when self-employed

In the past, the self-employed were able to self-certify their income, meaning lenders were happy to pay out based on someone’s word alone.

But this changed following the financial crisis, when irresponsible lending came under fire. While these self-certification mortgages for self-employed people were great for those who used them responsibly, the Financial Conduct Authority (FCA) removed them from the market outright in 2014.

Now, lenders ask to see a lot more proof of income and affordability. This will usually involve:

• certified accounts for two or more years
• evidence of your earnings from HMRC (form SA302)
• proof of upcoming work (e.g. contracts if you’re a contractor or freelancer)
• proof of dividend payments or retained profits (if you’re a company director)

Self-employed mortgage requirements UK

Lenders will look at your net profit if you’re a sole trader. They’ll look at your share of net profit or salary and dividends if you’re a company director, while contractors and freelancers should expect lenders to look at average income over the last few years.

While lenders prefer those who’ve been self-employed for at least two years, you might still be able to get a mortgage if you only have one year of accounts. You’ll usually need to demonstrate that you have plenty of upcoming work, but keep in mind that your options may be more limited.

How to get a mortgage if you’re self-employed

Along with the above information, you’ll need to give your lender the same information that people have to provide for a mortgage. Lenders will want to see your:

• passport
• driving licence
• council tax bills
• utility bills from the past three months
• six months of bank statements

Lenders will also ask about your lifestyle in conjunction with your bank statements to help them assess your affordability, for example travel costs, hobbies, and credit card payments.

It’s important to live sensibly in the months leading up to your mortgage application, so lenders can see that you’re spending within your means.

Self-employed mortgage: how much can I borrow?

The answer to this question depends on your income and the size of your deposit. Most lenders will usually pay out 4.5 times your annual income, but this can change depending on your circumstances.

It’s a good idea for self-employed people to save as much as they can for a deposit, as this often gives you a better range of deals to choose from.

Once you’ve collected all the key information, this self-employed mortgage calculator from Haysto can give you an idea of how much you could borrow.

Bank of England removes ‘stress test’ for borrowers

In August 2022 the Bank of England (BoE) removed mandatory stress tests on mortgage applications, making it easier for self-employed borrowers to get a mortgage.

Stress tests were introduced in 2014 in response to the 2007-08 financial crisis. The tests required borrowers to prove that they could still afford their mortgage repayments if interest rates increased by three per cent.

The BoE said that the 4.5 times lending limit on borrowers’ salaries, plus affordability set by the Financial Conduct Authority, will help to make sure that people aren’t given mortgages they can’t afford.

It’s been estimated that the removal of stress tests will allow an extra six per cent (35,000) of borrowers to get approved for a mortgage.

More tips for getting a self-employed mortgage

Find a mortgage broker

It’s likely that you struggle for time as it is, so finding a skilled self-employed mortgage broker should make the process as efficient as possible for you.

While a mortgage broker could add to your overall costs, they’ll know exactly what lenders expect to see and can help you find the right deals. It’s important to note that some brokers take their fee from the lender, which means it won’t cost you any extra.

Improve your credit score

Sometimes simple oversights can be dragging your credit rating down, including not being on the electoral roll at your current address, or old credit accounts still being open.

It’s worth checking your credit score to see what improvements you can make. You can do this for free with a number of companies, including ClearScore, Credit Karma, and Experian.

Hire an accountant

This is another tip that’ll add to your overall cost, but it’s important not to underestimate the value of professional advice.

Lenders will be more likely to trust your income details if you have a professional who prepares your accounts. Not only that, you’ll save time and benefit from expert tax advice – hiring an accountant can help you navigate self-employed tax changes and understand everything you can claim as self-employed expenses, for example.

Be organised with your paperwork

You already need to keep accurate tax records, so hopefully you have a system in place that will make gathering your paperwork for your lender a breeze.

Remember that lenders will want to see form SA302 too, which you can print using your HMRC personal tax online account.

Do you have any unanswered questions about self-employed mortgages? Let us know in the comments below.

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