Owning a home is a dream for many, but for self-employed individuals, the path to homeownership can seem a little more daunting. Maybe you’ve heard whispers about stricter affordability requirements or lenders shying away from the ‘unpredictable’ income of freelancers and business owners. But in most cases, there’s no need to be put off. While there might be some extra hurdles to jump over, securing a mortgage as a self-employed person in the UK is absolutely achievable for many people. The key is to understand how self-employed mortgage applications work, how to best prepare for them, and how to choose the right mortgage broker to help you. In this guide, we explain everything you need to know about getting a mortgage when self-employed to ensure you have the best chances of a successful journey.
What Counts as Self-employed?
In the UK, you’re considered self-employed if you run your own business and are responsible for its success or failure. This applies even if you haven’t formally registered your business with the government.
When it comes to mortgage lenders, you’ll typically be viewed as self-employed if you earn most of your income from a business that you own at least 20% to 25% of.
If you’re wondering if you’re self-employed, ask yourself the following questions.
- Do you find your own work and clients?
- Do you control how and when you work?
- Are you responsible for providing most of the equipment you need for your work?
- Do you have the option to hire other people to assist you?
If you answered yes to most of these questions, it’s likely you’re in some form of self-employed role. Common examples of self-employed workers in the UK include sole traders, freelancers, contractors and company directors.
What is a Self-employed Mortgage?
There isn’t actually a specific mortgage product called a ‘self-employed mortgage’ in the UK – providing you pass the lender’s criteria, you should have the same mortgage options open to you as an employed person.
The process for getting a mortgage is also very similar to that of an employed person, the key difference being that as a self-employed individual, you will need to provide more evidence of your income to satisfy the lender’s requirements.
Is it More Difficult to Get a Mortgage When Self-employed?
Getting a mortgage can be more difficult for self-employed people in the UK compared to those with traditional salaried jobs. Let’s have a look at some of the challenges for self-employed mortgage applicants.
- Proof of Income. Lenders generally prefer the stability of a regular paycheck with payslips. Self-employed income can fluctuate, making it trickier to assess affordability. You’ll need to provide strong documentation like tax returns and bank statements.
- Trading History Matters. Lenders often prefer a longer track record of self-employment to feel confident about your income stability. Typically this is at least two years’ worth of accounts. If you’ve recently become self-employed, you may have fewer options available, but you may still be able to get a mortgage.
- Lenders May Be Stricter. Some lenders may have stricter requirements for self-employed borrowers. For example, you might need a larger deposit to qualify for their most competitive mortgage rates.
Although it can be more challenging to get a mortgage when self-employed, it’s certainly not impossible. With the help of an experienced self-employed mortgage broker, it should just be a case of gathering a bit more information and jumping a few more hurdles. We’ll discuss how best to prepare for your self-employed mortgage application a bit later.
How Much Can I Borrow When Self-employed?
There’s no one-size-fits-all answer to how much you can borrow with a mortgage when self-employed in the UK. Lenders will assess several factors to determine your affordability, including your income, outgoings, and credit score. Let’s have a look at how they do this.
When it comes to income, lenders typically use your average income from the past 2-3 years of tax returns and then apply a multiplier to determine the maximum loan amount. The exact multiplier will vary from lender to lender but is usually around 4.5 times your income. However, a good mortgage broker may be able to help you find a lender that is willing to lend you more than 5 times your income providing you meet certain criteria.
It’s important to understand that income multiples are just a starting point. Lenders will also consider your outgoings (expenses and debts) to ensure the mortgage repayments are manageable. They’ll also look at your creditworthiness when assessing your risk profile.
To learn more about income multiples, please read our guide, ‘Is a Mortgage 3 Times Your Salary?’
How to Prepare for Getting a Mortgage When Self-employed
Although it can be slightly more difficult to get a mortgage when self-employed, making the right preparations can go a long way to ensuring a successful journey. Let’s have a look at some of the things you can do to increase your chances of getting a mortgage when self-employed.
- Prepare your documents. Gather your tax returns, bank statements, and any business financial statements well in advance. Most lenders will want to see at least two years of accounts, but we may still be able to help you get a mortgage if you’ve been self-employed for a shorter period of time.
- Show Stable Income. If you can prove that your income is stable and regular, this can increase your chances of being successful. If your income does fluctuate, it may be wise to offer some explanation if possible (e.g. seasonal business).
- Build a Good Credit Score. A strong credit history shows responsible borrowing habits and improves your application’s appeal. Learn the best way to check and improve your credit score by reading our guide, ‘How Do I Check My Credit Score?’
- Increase Your Deposit. A larger down payment reduces the loan amount you need, making you a less risky borrower in the lender’s eyes. If you are able to save more or get help from family, you may be eligible for better rates.
- Talk to a Mortgage Broker. An experienced mortgage broker can help you find a lender that suits your needs, including lenders who specialise in mortgages for the self-employed. They can also complete your application in the correct way to increase your chances of being accepted and to protect your credit score. As a self-employed person, it’s important you choose a mortgage broker with the right experience, so please read our guide, ‘Choosing a Mortgage Broker for Self-employed or Freelancers’.
If you’d like to learn more about how to prepare for your mortgage application, please read our guide, ‘What Do I Need to Get a Mortgage?’
Company Director ‘Net Profits’ Mortgages
As a company director, you are considered self-employed by most lenders, and therefore, everything we’ve discussed above applies to you. However, you may be able to borrow much more with certain lenders than others by applying for a Company Director ‘Net Profit’ Mortgage. This is where the lender considers your company’s net profits as well as your salary when calculating your affordability. This could enable you to borrow much more compared to a regular mortgage that only considers your salary and dividends. To learn more about these specialist products, please read our guide, ‘Mortgages for Company Directors (The Ultimate Guide)’.
The Bottom Line
The Shared Ownership Scheme provides the opportunity to partly own and partly rent a property, and then work towards full ownership over time. It is available to First Time Buyers, previous homeowners, current shared ownership homeowners, and people want to move but can’t afford a property that meets their needs. You’ll need to secure a mortgage for the share you own, and you’ll need at least a 5% to 10% deposit for this share. To see if you are eligible for a mortgage using this scheme and to find out what rates are available to you, please book a chat with one of our friendly advisors. We’ll only recommend for mortgages you’re likely to be accepted for to protect your credit score.
At Michael Usher Mortgage Services, we’ve been helping our local community for over 30 years! We’re not affiliated with any particular lender, so we can access a comprehensive range of mortgages from across the market to find a deal that suits your needs. We’ll guide you through the process and liaise with your lender, estate agent and solicitor to ensure your application goes as smoothly as possible, and we can also help to protect your mortgage with our FREE Insurance Service.
Talk to one of our friendly mortgage advisors for free to get going quickly. Our head office is on Frimley High Street, but we can also help you remotely via phone or video call if you’d prefer. We look forward to chatting with you!
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Your home may be repossessed if you do not keep up repayments on your mortgage. There may be a fee for mortgage advice. The precise amount will depend on your circumstances but will be agreed with you before proceeding.
