Self-Employed and Securing a Mortgage

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Securing a mortgage when you’re self-employed, a contractor, or a freelancer can feel like navigating a maze with additional hurdles. While traditional employees can simply present their payslips, your income structure requires more documentation and planning. Here’s a guide to help you navigate the mortgage market.

Understanding the Lender’s Perspective

Lenders want assurance that you can consistently make your mortgage payments. Without a regular salary, they’ll scrutinise your income stability and business sustainability more closely.

Preparing Your Documentation

Self-Employed (Business Owners)

• Accounts: At least two years of business accounts, ideally prepared by a chartered accountant
• Tax returns: SA302 forms and tax year overviews for the past 2-3 years
• Bank statements: Business and personal statements showing income patterns
• Proof of upcoming contracts: Evidence of future income

Contractors

• Current contract: Shows your day/hourly rate and contract duration
• Contract history: Previous contracts demonstrating consistent work
• Bank statements: Showing regular income from contracts
• CV: Demonstrating your experience and employability in your sector

Freelancers

• Tax returns: SA302 forms for at least two years
• Client history: Demonstrating diverse income sources
• Invoices: Recent client invoices showing ongoing work
• Bank statements: Showing regular income deposits

How Lenders Calculate Your Income

Different lenders have varying approaches:

• Self-employed: Most lenders use your share of net profits (typically average of last 2-3 years)
• Limited company directors: Salary plus dividends, or share of company profits
• Contractors: Daily rate × days worked per week × 46-48 weeks (accounting for holidays)
• Freelancers: Average of last 2-3 years’ income from tax returns

Specialist Mortgage Options

Consider working with:

• Specialist brokers with experience in self-employed mortgages
• Lenders with tailored products for contractors and self-employed professionals

Improving Your Chances

• Clean up your credit score at least 12 months before applying
• Build a larger deposit (15-20% minimum is ideal)
• Keep business and personal finances separate
• Maintain consistent income in the years leading up to application
• Reduce debt-to-income ratio by paying down other debts
• Register on the electoral roll to improve your credit profile

Timing Your Application

For self-employed individuals, timing matters:

• Apply after filing your latest tax return if it shows income growth
• Consider delaying if you’ve recently changed business structure
• Apply mid-contract rather than between contracts if you’re a contractor

Common Challenges and Solutions

Limited Trading History

• Some specialist lenders will consider one year of accounts
• Consider joint applications with a partner who has regular employment
• Build a larger deposit to offset the risk

Fluctuating Income

• Maintain detailed records explaining any dips
• Focus on demonstrating an upward trend
• Consider using an accountant’s projection letter

Recently Self-Employed

• Consider “contractor mortgages” if you’ve moved from employment to contracting in the same industry
• Look for lenders who consider your employed history alongside self-employed income

Getting a mortgage as a self-employed professional requires more preparation, but is entirely achievable with the right approach. Start planning early, keep meticulous records, and consider working with a mortgage broker who specialises in self-employed applications.

Remember that each lender has different criteria for self-employed applicants, so don’t be discouraged if your first application is unsuccessful. The right mortgage for your situation is out there.

Frequently Asked Questions

What documents do I need for a self-employed mortgage?

Business owners usually need at least two years of business accounts, ideally prepared by a chartered accountant, plus SA302 forms and tax year overviews for the past two to three years, business and personal bank statements, and evidence of upcoming contracts or future income.

How many years of accounts do I need to get a mortgage when self-employed?

Most lenders ask for at least two years of accounts or tax returns. Some specialist lenders will consider one year of accounts, especially if you have a larger deposit or apply jointly with a partner in regular employment.

How do lenders calculate self-employed income?

It depends on how you work. For the self-employed, most lenders use your share of net profit, typically averaged over the last two to three years. For limited company directors, they look at salary plus dividends, or your share of company profits. For freelancers, they usually average your income from the last two to three years of tax returns.

How do lenders work out income for contractors?

Many lenders multiply your daily rate by the number of days you work each week, then by 46–48 weeks to allow for holidays. You’ll usually need your current contract showing your rate and duration, your contract history, bank statements and a CV showing your experience in your sector.

What do freelancers need to get a mortgage?

Freelancers typically need SA302 forms for at least two years, a client history showing a range of income sources, recent invoices showing ongoing work, and bank statements showing regular income.

How much deposit do I need as a self-employed mortgage applicant?

A deposit of at least 15–20% is ideal. A larger deposit can also help offset the risk if you have a limited trading history.

When is the best time to apply for a mortgage if I’m self-employed?

Apply after filing your latest tax return if it shows income growth. Consider waiting if you’ve recently changed your business structure. If you’re a contractor, apply mid-contract rather than between contracts.

Can I get a mortgage if I’ve only recently become self-employed?

It’s possible. If you’ve moved from employment into contracting in the same industry, a contractor mortgage may be an option, and some lenders will consider your previous employed history alongside your self-employed income.

At 3mc, we have a team of expert advisers who can discuss all your mortgage requirements. If you would like to discuss your options, give the 3mc team a call on 0161 962 7800.

All calls are recorded for training and monitoring purposes. 3mc for intermediaries only.

*Your home may be repossessed if you do not keep up repayments on your mortgage. 3mc (UK) Ltd is authorised and regulated by the Financial Conduct Authority and is entered on the Financial Services Register https://register.fca.org.uk/s/ under reference 302992. Please note: The FCA do not regulate Business Buy to Let Mortgages.