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With more people now choosing freelance, contract, and self employed work, it’s no surprise that getting a mortgage has become one of the biggest concerns for those without a fixed salary.
Whether you’ve launched a business, work project-to-project, or earn through a limited company, your mortgage application may look a little different. That doesn’t mean it’s out of reach.
Lenders are beginning to recognise the shift in working patterns. There are many options available if you’re self employed.
The key is knowing what lenders want to see and how to present your income in the right way.
Mortgage Advice for Self Employed Applicants
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What Counts as Self Employed?
You’re typically considered self employed if you own more than 25% of a business or operate as a sole trader or partner.
If you’re a director of your own limited company, lenders will usually treat you differently from someone on a standard payroll.
The structure of your income and the time you’ve been trading will affect how much you can borrow and which lender may suit your situation.
How Many Years of Accounts Do You Need?
Most lenders ask for two years of accounts, although there are some who may accept just one year.
These are usually more specialist lenders, and they often prefer accounts that have been prepared by a qualified accountant.
Lenders want to see that your business is stable. The more proof of income you have, the better your chances of success.
How Do Lenders Assess Your Income?
Many lenders will take an average of your income over the last two years. If your income has gone up recently, some may base their decision on the latest year alone.
For limited company directors, most lenders add together your salary and any dividends you’ve taken. A smaller number of lenders may look at retained profits, which can help if you’ve kept drawings low.
What If Your Accounts Don’t Reflect Your Real Income?
Lots of business owners try to keep their declared income low when it comes to tax, but this can work against you when applying for a mortgage.
Lenders can only base their decision on what’s been submitted to HMRC. It may be worth reviewing your approach with an accountant if you’re planning to buy or remortgage.
Once accounts have been submitted, the figures are locked in. Planning ahead can make a difference.
What Deposit Do You Need?
In most cases, the minimum deposit for a self employed mortgage is the same as for someone who is employed.
That usually starts at 5 percent. If you’ve only been trading for a short time or your income is harder to verify, some lenders may ask for a higher deposit.
Contractor Mortgages
Contractors are often assessed based on their daily rate, especially if they’ve built up a history of short-term or rolling contracts.
Some lenders may treat you as self employed instead, depending on which approach gives a better outcome.
You may be asked how long is left on your current contract and whether there have been any breaks between contracts.
Even if you’re on your first contract, a mortgage could still be possible if your background supports it.
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What Happened to Self Cert Mortgages?
Self certification mortgages were withdrawn several years ago and aren’t expected to return. These allowed borrowers to state their income without evidence, which caused issues across the market.
Today, lenders must see proof of income. That may feel restrictive, but it also gives lenders more confidence to offer better rates when they can see your figures clearly.
Can You Use Projected Income?
In some cases, projected income may be considered. This is more likely if your accounts have already been submitted to HMRC and show a clear upward trend.
If you know your next set of accounts will improve your mortgage options, you might consider waiting until they’re filed before applying. Without submitted figures, most lenders won’t include them.
Support for Self Employed Buyers
Getting a mortgage as a self employed applicant may take a little more planning, but it’s completely possible.
Whether you’re a sole trader, limited company director, freelancer, or contractor, there are lenders who understand your income setup.
At UK Moneyman, we work with a wide panel of lenders who support self employed clients.
If you’re buying a new home, moving house, or remortgaging, we’ll help you understand your options and find a route that suits how you work.
