Everything you need to know about mortgages for self-employed
If you’re self-employed, you can still get a mortgage. In our helpful guide to self-employed mortgages, we’ll run through everything you need to know.
How do you get a self-employed mortgage?
A self-employed mortgage isn’t a specific mortgage product. You apply for the same mortgage as employed people, it’s just that the lender may ask for more evidence of a reliable income so they can asses mortgage affordability.
Often mortgage lenders will want to see company accounts from the last two to three years or self-assessment tax returns (or a tax overview from HMRC) for the last two to three years.
Self-employed mortgages for freelancers
As a freelancer hired to work at different companies on specific jobs, you’ll most likely be self-employed. There are various rules around what constitutes an employee or a contractor, but most freelancers are self-employed.
Again, there isn’t a specific mortgage product for freelancers. Instead, you will need to apply in the usual way for a mortgage. The key thing that mortgage providers will look for is that your income is reliable. As a freelancer, you have less rights than an employee and often move from contract to contract. Mortgage underwriters will want to see evidence of steady income over a certain period of time, often two to three years so they can asses your future earning potential.
How to prepare for a self-employed mortgage application
Before you apply for a mortgage when you’re self-employed, you’ll need to gather a number of documents including:
- Two or more years of certified accounts – prepared by a qualified accountant
- SA302 forms (or an HMRC tax overview) for the last two or three years
- Passport or driving licence
- Recent utility bills
- Bank statements for three to six months
- Evidence of your deposit
Your documentation is one thing. You also want to put yourself in the best position to have your application accepted. Make sure you:
Save for the biggest possible deposit
A bigger deposit opens up more potential mortgage deals available to you, with better rates. With more possible deals on the table, the better chance you have of finding a lender that is more favourable to self-employed applicants.
Boost your credit score
The better your credit score, the more chance you have of being accepted for a mortgage when you’re self-employed. Lenders look at your credit score to asses your suitability to borrow and pay back money. Things you can do to enhance your credit score include:
- Use your credit card regularly and pay it back on time
- Never miss any payments
- Get on the electoral role
- Close old credit accounts
Get an accountant
Your past earnings are so important when it comes to applying for a mortgage as a self-employed person. A good accountant will help you submit accurate self-assessment returns to HMRC. If you’re a self-employed business owner, lenders will want to see your accounts. And they don’t just want to take your word for it in terms of your earnings. Certified accounts prepared by a qualified accountant are essential.
Many mortgage lenders also ask for your accountant to complete an Accounts Certificate, including numbers from the last few years plus projections for your current financial year. They will want it to be completed by a registered accountant and may ask for it to be stamped and countersigned.
How many years do you have to be self-employed to get a mortgage?
Most lenders want you to have been self-employed for at least two years. They will often ask for either two years of tax returns or two years of accounts. It is possible to get a mortgage if you’ve been self-employed for less time than this, but the lenders may require more documentation to assess your affordability.
How will a lender calculate my self-employed mortgage earning?
Lenders will calculate your self-employed earnings slightly differently depending on your self-employed status. For example:
- If you have a limited company, lenders will look at your share of net profit or the salary and dividends you take from the business.
- If you are a sole trader, lenders will look at your net profit over the last two to three years, taking an average.
- If you are a contractor, lenders will look at the average of your income over the last three years. If it varies considerably, they may take the lowest earning year as the benchmark for what you can borrow.
Do self-employed people have to pay higher mortgage rates?
No, mortgage rates aren’t based on your employment status. If you are able to provide proof of your income and the mortgage lender is satisfied with your affordability, you should qualify for the mortgage rate in the same way as someone who is employed.
Being able to secure a better mortgage rate is all down to the deposit you can put down on the property. The bigger your deposit the lower your loan to value (LTV) ratio and the better your potential mortgage rate.
Self-employed mortgage FAQs
How to find the best self-employed mortgage rate for you
To help get the best mortgage rate as a self-employed person, it’s important to have all your documentation in order and up to date. It will also help if you’ve been self-employed for at least two to three years.
You’ll also want to apply to a mortgage lender that specialises in providing mortgages to self-employed people.
