If you are self-employed, you can still get a mortgage.
However, proving your income can take more work.
This is because your income may change from year to year. Also, you may earn money in different ways.
For this reason, lenders often ask for more documents.
The good news is that there are many mortgage options for self-employed people.
Can I Get a Mortgage If I Am Self-Employed?
Yes.
Being self-employed does not stop you from getting a mortgage.
In fact, you can often apply for the same mortgages as employed people.
However, the lender will need to check your income.
It will also check whether you can afford the mortgage.
Who Is Classed as Self-Employed?
You may be self-employed if you work for yourself.
For example, you may be a:
- sole trader
- freelancer
- contractor
- business partner
- company director
However, lenders have different rules.
Therefore, one lender may look at your income differently from another.
Why Is My Income Checked Differently?
An employee may receive the same salary every month.
However, self-employed income can change.
For example, your business may have a busy year. Then, the next year may be quieter.
Also, you may receive money in different ways.
As a result, the lender needs to understand your normal income.
What Will the Lender Look At?
The lender will look at your income.
However, it will also look at your wider finances.
For example, it may check your:
- deposit
- loans
- credit cards
- car finance
- regular spending
- credit history
Therefore, your business income is only one part of the mortgage decision.
How Is My Income Worked Out?
This depends on how you work.
For example, a sole trader may be checked differently from a company director.
Also, a contractor may be checked in another way.
The lender may look at your:
- accounts
- tax records
- business profits
- salary
- dividends
- contracts
However, lenders do not all use the same method.
As a result, different lenders may offer different mortgage amounts.
Mortgages for Sole Traders
A sole trader runs their own business.
If you are a sole trader, the lender may look at your profits.
For example:
Business turnover: £60,000
Business costs: £25,000
This leaves:
£35,000
However, the lender will decide which figure it can use.
Therefore, your turnover is not the same as your income.
What Is Turnover?
Turnover is the money your business receives.
For example, your business may receive:
£80,000
during the year.
However, you may have:
£40,000 of business costs
Therefore, you have not personally earned £80,000.
This is why lenders may look at your profit instead.
Mortgages for Business Partners
You may own a business with someone else.
If so, the lender may look at your share of the profits.
For example:
Business profit: £80,000
Your share: 50%
Your share would be:
£40,000
The lender may use this when checking your income.
However, it will also look at your other finances.
Mortgages for Company Directors
You may run your business through a limited company.
If so, you may receive:
Salary
and
Dividends
Some lenders may use both.
However, lenders can have different rules.
Therefore, one lender may offer you more than another.
What Are Retained Profits?
Your company may make a profit but keep some of the money in the business.
This money is known as retained profit.
For example, your company may make £60,000.
However, you may only take £35,000 as salary and dividends.
Some lenders may focus on the £35,000.
However, other lenders may look at more of the company’s finances.
Therefore, lender choice can be important.
Mortgages for Contractors
Contractors can also get mortgages.
A lender may look at your:
- current contract
- contract rate
- past contracts
- work history
- income
For example, some lenders may use your contract rate.
However, others may use your accounts or tax records.
Again, the rules can vary.
How Long Do I Need to Be Self-Employed?
There is no single rule.
Some lenders want to see several years of income.
However, others may accept a shorter history.
For example, a lender may also look at your previous job.
This may help if you now work for yourself in the same type of work.
Therefore, you may still have options if you have only recently become self-employed.
Do I Need Three Years of Accounts?
Not always.
This is a common myth.
Some lenders may ask for several years of accounts.
However, others may accept less.
Therefore, you do not always need to wait three years before applying.
What Documents Will I Need?
The lender will need proof of your income.
For example, it may ask for:
- tax calculations
- tax year overviews
- business accounts
- bank statements
- contracts
It may also ask for your accountant’s details.
However, the documents needed will depend on your situation.
What Is an SA302?
An SA302 is a tax calculation.
It can help show the income you have reported for tax.
A lender may ask for this when checking your income.
It may also ask for a tax year overview.
Therefore, keep your tax records safe and up to date.
Will I Need Business Accounts?
Possibly.
Business accounts can help show how your business is doing.
For example, they can show your:
Turnover
Costs
Profit
The lender can then use this information when checking your income.
What If My Income Changes Each Year?
This is normal for many self-employed people.
For example:
Year 1: £35,000
Year 2: £40,000
A lender may look at both years.
It may then use an average.
However, another lender may use a different method.
Therefore, changing income does not always cause a problem.
What If My Income Has Increased?
Your income may have gone up.
For example:
Year 1: £30,000
Year 2: £40,000
This can be positive.
However, the lender may still look at both years.
Therefore, it may not use the latest figure on its own.
What If My Income Has Fallen?
Your income may have gone down.
For example:
Year 1: £45,000
Year 2: £35,000
In this case, the lender may ask why.
For example, you may have had a quiet year.
Or, you may have spent money growing the business.
Therefore, be ready to explain large changes in income.
Does My Deposit Matter?
Yes.
Your deposit affects how much you need to borrow.
For example:
Home price: £200,000
Deposit: £20,000
Mortgage needed: £180,000
Therefore, a larger deposit means you need a smaller mortgage.
It may also give you more mortgage choices.
Do Self-Employed People Need a Bigger Deposit?
Not always.
Being self-employed does not automatically mean you need a bigger deposit.
However, the lender will still need to check your income.
It will also check whether the mortgage is affordable.
Does My Credit History Matter?
Yes.
The lender will usually check your credit history.
For example, it may look at your:
- loans
- credit cards
- mortgages
- other borrowing
Therefore, check your credit reports before you apply.
Also, make sure the information is correct.
Do My Debts Matter?
Yes.
Debts can reduce the amount you can borrow.
For example:
Loan payment: £250 per month
Car finance: £350 per month
Together, these cost:
£600 per month
Therefore, you have £600 less each month for other costs.
As a result, the lender may offer you a smaller mortgage.
What About Business Loans?
The lender may also ask about business debts.
For example, your business may have a loan.
This does not always cause a problem.
However, the lender may want to know how the loan affects the business.
Therefore, provide clear information when asked.
Keep Good Records
Good records can make getting a mortgage easier.
For example, keep your:
- accounts
- tax records
- bank statements
- contracts
Also, try to keep your business and personal finances clear.
This can make your income easier to understand.
What If My Business Had a Bad Year?
One bad year does not always stop you from getting a mortgage.
There may be a simple reason for the lower income.
For example, you may have:
- bought new equipment
- taken time away from work
- lost a customer
- spent money growing the business
Therefore, the lender may ask what happened.
Clear records can help you explain this.
What If I Have More Than One Job?
You may have more than one source of income.
For example, you could have a job and also run a business.
A lender may be able to use both incomes.
However, you will normally need proof of each one.
Therefore, keep records for all your income.
What If I Have Rental Income?
You may also receive rent from a property.
If so, the lender may ask about it.
For example, it may want to know:
- how much rent you receive
- how much the property is worth
- how much you owe on the mortgage
The lender will then decide how much of the rental income it can use.
How Does Affordability Work?
The lender needs to make sure you can afford the mortgage.
First, it looks at your income.
Then, it looks at your debts and regular costs.
After that, it looks at the mortgage you want.
This helps the lender decide how much you may be able to borrow.
Should I Borrow the Maximum Amount?
Not necessarily.
For example, a lender may offer you:
£220,000
However, you may feel more comfortable borrowing:
£190,000
This could give you lower monthly payments.
Also, it could leave more money for other costs.
This can be useful if your income changes during the year.
Plan for Quiet Months
Your business may be busier at some times of the year.
Therefore, do not plan your mortgage around your best month.
Instead, think about your normal income.
Also, think about quieter months.
Could you still afford the mortgage?
If so, your mortgage may be easier to manage.
Remember Your Tax
Some of the money in your bank account may be needed for tax.
Therefore, it is important to plan for this.
For example, do not use money saved for your tax bill as a house deposit.
Instead, try to keep your tax money separate.
Keep Some Savings
It can also help to keep some emergency savings.
For example, your business may have a quiet month.
Also, a customer may pay late.
At the same time, your home may need a repair.
Therefore, some spare savings can give you extra security.
Think Before Making Big Changes
You may be planning to change your business.
For example, you may want to:
- become self-employed
- set up a limited company
- take out a business loan
- change how you pay yourself
These changes do not always stop you from getting a mortgage.
However, they may change how a lender checks your income.
Therefore, think about the timing before making a major change.
Can a Mortgage Broker Help?
A mortgage broker may be useful.
This is because lenders have different rules for self-employed income.
For example, one lender may offer you £150,000.
However, another may offer more.
A broker may be able to find lenders that suit your type of income.
However, check whether the broker charges a fee.
Also, check which lenders they can use.
Can I Get a Mortgage in Principle?
Yes.
A Mortgage in Principle can give you an idea of how much you may be able to borrow.
However, it is only an early guide.
The lender will still need to check your income.
It will also need to check the property.
Therefore, a Mortgage in Principle is not a mortgage offer.
Prepare Before You Apply
Getting ready early can make the process easier.
For example, gather your:
Accounts
Tax records
Bank statements
Proof of deposit
Details of debts
Contracts
Also, check that the information is up to date.
This can help reduce delays.
Common Self-Employed Mortgage Myths
I Can’t Get a Normal Mortgage
False.
Self-employed people can get normal mortgages.
However, you may need to provide more proof of income.
I Need Three Years of Accounts
Not always.
Some lenders may accept less.
Therefore, check your options before deciding to wait.
I Need a Bigger Deposit
Not always.
Being self-employed does not automatically mean you need a larger deposit.
My Turnover Is My Income
No.
Turnover is the money your business receives.
However, your business also has costs.
Therefore, turnover and profit are different.
Every Lender Will Offer the Same Amount
No.
Lenders use different rules.
Therefore, the amount you can borrow can vary.
Before You Apply
It can help to check five things.
1. Check your income
Make sure your accounts and tax records are ready.
2. Check your deposit
Know how much you have saved.
Also, keep proof of where the money came from.
3. Check your debts
Look at your loans, credit cards and other borrowing.
4. Check your credit reports
Make sure the information is correct.
5. Check your budget
Work out what monthly payment you can comfortably afford.
These checks can give you a much clearer picture before you apply.
The Key Point
Being self-employed does not stop you from getting a mortgage.
However, you may need to provide more proof of your income.
For example, a lender may look at your accounts and tax records.
It may also look at your business profits.
However, lenders use different rules.
Therefore, one lender may offer you more than another.
Good records can make the process much easier.
Also, planning ahead can help.
Most importantly, being self-employed does not mean getting a mortgage has to be difficult.
The key is to show your income clearly and find a lender whose rules suit the way you work.