Self-Employed Mortgages

Is it hard to get a mortgage if you are self-employed?

I don’t think it’s hard. It’s fair to say that there can be a few extra hoops to jump through and slightly different criteria that lenders use. Ultimately, mortgage lenders are assessing the risk of lending to you. They want to confirm credibility and feasibility.

When someone is self-employed, that probably involves a few extra checks. I wouldn’t say it’s particularly hard, but you can expect there to be a few extra pieces of the puzzle.

What type of mortgage can I get if I’m self-employed? Can I get a 95% mortgage if I’m self-employed?

The type of mortgage isn’t necessarily influenced by one’s employment type. The mortgages available are pretty consistent whether you’re employed or self-employed.

A 95% mortgage obviously relates to Loan to Value, where 95% means that the applicant has a 5% deposit of their own. These mortgages are available to employed and self-employed people. It’s certainly not restricted in that way.

How many years do you have to be self-employed to get a mortgage? Can I get a mortgage with only one year of self-employment?

Yes, you can. A handful of lenders would consider applicants with just one year’s self-employed status. In truth, most lenders in the market probably want a two or three year history at least. That shows consistency, and lenders then apply an average in the context of affordability and income.

Some will accept just one year – an example might be when someone is newly qualified in a professional position, such as a doctor, or if someone who has been employed previously in a similar role.

Lenders are looking for consistency. If you had moved from employed to self-employed, but in a similar role, it’s more likely a lender would consider just one year’s self-employment records.

My most recent year’s earnings were less than my average. Will this affect my mortgage application?

The averaging principle tends to apply to affordability. Most lenders looking at self-employed applicants would want to average the latest two or even three years of income, before applying their affordability calculator.

If one’s latest year shows lower income than previous years, that is going to have some impact. The lender would want to do a few extra checks and try to understand the reason behind that.

They don’t particularly want a downward trend on income – they’re looking for consistency.
That said, there are a number of viable reasons why one’s income might be reduced in a particular year.

We tend to think of the self-employed in the context of sole traders and limited company directors. So it would be perfectly reasonable for a business’s profit, for example, to be lower one year than the previous year. The company might have had greater expenses that year, or have invested in the business.

If a lender was using share of net profit, it wouldn’t be uncommon for that to fluctuate more than perhaps salary or dividends. So it’s a little more complicated. While having a downward trend of income is going to have an impact on your ability to borrow, that may not be an issue under certain circumstances.

How much can you borrow as a self-employed person? How many times my salary can I borrow for a mortgage if I’m self-employed?

The salary multiplier is a little out of date these days, although I appreciate it’s quite a good gauge. Lenders have moved to other ways of assessing affordability beyond just a multiple of income.

There are various factors around that. It could be someone’s credit history, the size of the deposit, or ultimately that Loan to Value piece we mentioned earlier.

The bigger the deposit – or the lower the Loan to Value – the more positive the impact on the amount of borrowing. Household costs are a factor too. Debts and children tend to impact affordability, compared to people who don’t have debts or kids.

Income is clearly very important in assessing how much people might be able to borrow.
The way it’s assessed is slightly different for the self-employed. Obviously, employees benefit from a consistent salary and possibly bonuses, overtime, commission or other extras.

For people who are self-employed as sole traders, the main factor is net profit. Or, for shareholders or directors of a limited company, the income used for affordability could be salary and dividends or salary and share of profit. In some cases it could even be a share of retained profit.

Advisors up and down the country are always asked how much people can borrow. But the answer isn’t as simple as a certain multiple of your income. Your individual position will impact the amount you can borrow.

What mortgage deposit do I need if I’m self-employed? Can I use my self-employment grant as a deposit?

The market in general suggests you’ll need a minimum of 5% of your own money. That’s fairly consistent across the employed and self-employed. Some lenders have introduced some quirky products that allow lower deposits than 5%, but these have other key criteria attached to them [podcast recorded in January 2025].

For example, we’ve seen starter mortgages where a family member could save with a particular bank or lender, and therefore reduce the deposit. But to keep it simple and straightforward, 5% is where you need to be with most of the market.

Lenders want to be comfortable that the deposit is from a legitimate source. We’re going to be asked for proof of that deposit and often proof of the build up. If it’s savings, don’t be surprised to be asked for three or even six months evidence of that growth.

Most lenders would be hesitant about using a grant as a deposit. The grant was seen as temporary and not necessarily reflective of a stable income. It was designed to offset reduced earnings. An applicant would almost certainly get pushback from lenders in that regard, if I’m honest.

What are self-certification mortgages and do they still exist?

We could have a whole podcast dedicated to self-certification mortgages, but we haven’t seen these since the 2008 financial crisis. Self-certification gave an applicant the ability to simply sign an application form confirming that the loan was affordable. It seems unbelievable in the current climate, but lenders would just accept that as evidence of ongoing affordability.

We were signing to confirm we were happy to take on the loan. But as was proven in 2008, that wasn’t good enough as an affordability assessment from a lender’s perspective. That’s why they don’t exist anymore.

How will you be assessed as a self-employed mortgage applicant?

Assessment is fairly consistent whether you’re self-employed or employed. The main differences are around income proof and what’s used as your income.

Lenders would do some form of credibility or viability check. It relates to your overall position – how long you’ve been self-employed, the amount you want to borrow and the deposit saved, for example.

Each lender would assess an applicant against their own policy or criteria. This market is so broad that from one lender to another, the different elements of criteria can be extreme. And of course, that lender has chosen those criteria for their own reasons.

That’s where an advisor or broker really comes into their own – to go to the market and understand the applicant’s needs in the context of the lender’s policy. It’s a key point, because an individual applicant might trawl up and down the high street and be rejected a lot, simply because a piece of criteria doesn’t fit with those lenders.

Income and affordability is another assessment piece. For sole traders it’s typically net profit and for limited company directors, salary and/or dividends, or salary and net profit. Lenders are different in that regard.

There could also be other income at play, such as property rental income, and there are different ways lenders will assess income, affordability, expenditure and outgoings.

We’ve talked about debts and kids, for example. It’s less about what we spend on a TV package, for example, and more about essential household expenditure, because that will impact affordability.

Then, lenders consider the future. A lot of people don’t appreciate that while we’re borrowing at a particular rate, it’s important to think about changes to that. Let’s say fixed rates are currently 4%, but actually, lenders’ variable rates are considerably higher than that. In some instances, they are as much as double.

Lenders may stress test, as we call it, assessing your application based on the follow-on rate. Applicants don’t necessarily understand why lenders use stress testing that doesn’t seem to bear any relevance to the product available.

This comes from the regulator, and the lender’s process is to assess the application based on you having this mortgage for the next 20, 25 or 30 years. That’s despite the fact that you might be taking a short term product or incentive. So the future will impact your application from a lender’s perspective – but also, your future plans, expectations and various other elements might come into play with the application.

With business owners, I’ve sometimes had to send a business plan to a lender to show the trajectory of profit and income over the course of time. So it’s quite difficult to explain how you will be assessed – in reality, it could be very detailed depending on the lender and your circumstances.

Will IR35 affect my mortgage application?

IR35 is a piece of legislation that typically relates to contractors and individuals who contract to a company. I don’t believe that lenders are particularly interested or concerned in the intricacies of the IR35 legislation. In short, I don’t think it has an impact on one’s ability to get a mortgage.

Lenders generally define your employment status based on who pays the tax. If tax is deducted at source, on a pay slip, typically you’ll be classed as employed. If you are responsible for your own tax, typically you’ll be classed as self-employed.

Lenders don’t get into the IR35 rules. There are some quirks. CIS workers, typically in the construction industry, are classed as self-employed but often the company they contract to will pay the tax on their behalf.

That’s quite common with umbrella companies too, so in the context of mortgage lending these applicants will be treated as employed. There are a few intricacies, but the reality is that if your employer pays your tax you’re employed, and if you’re responsible for your tax, you’re treated as self-employed.

How will a lender calculate my self-employed mortgage earnings?

A sole trader is receiving profits, and that’s what a lender is interested in. A limited company director typically receives salary and dividends. They might have a share of a profit that can be used, so that’s typically what’s used from a lending perspective.

How do I prove my income? What documents do I need?

From a document perspective for sole traders, the document used to be called an SA302. That’s HMRC’s reference for the document.

It could also be known as a tax calculation or tax year overview. Fundamentally, it’s the one or two-page document you get following a tax return, that confirms the income for sole traders or self-employed people. You’ll need that for the last two years.

Limited company directors, shareholders or business owners are probably likely to be asked for the latest two years accounts for that business, too.

You also need business and personal bank statements for the latest three months. If you manage to dig all that out or get it from your accountant, that probably gives you everything you need.

What else do we need to know before we return for part two?

As is evident from what we’ve covered so far, it’s quite a detailed market. I would suggest taking the time to talk with an advisor who understands the market. It will save a lot of time and hassle.

But there’s no reason self-employed people should feel it should be more of a headache just because of their employment status.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.