Getting a Mortgage When You're Self-Employed

Getting a mortgage when you're self-employed should be straightforward. Too often, it isn't. Here's what lenders look for, what you'll need, and how to give yourself the best chance of being approved at a good rate.

Why is it harder to get a mortgage when self-employed?

The short answer: it isn't, if you go to the right lender.

Many lenders are still set up for traditional employees with a single payslip. If your income comes from your own business, varies year to year, or includes dividends, retained profits, or contract work, you can find yourself being squeezed into a box that doesn't fit.

Some lenders will reject your application. Others will offer you far less than you can actually afford. The same applicant could be turned down by one lender and offered a great rate by another. The lender matters far more than most people realise.

What lenders actually want to see

Most lenders will want to see 2 to 3 years of accounts or self-assessment tax returns. Some specialist lenders will accept just one year for the right applicant.

They'll look at:

• Your trading history and how long you've been self-employed
• Your average income over the last 2 to 3 years
• Whether your income is stable, growing, or declining
• Your credit history and overall financial situation
• Any other commitments such as existing loans or credit cards

The key is matching you with a lender who understands your specific income structure. That's where self-employed mortgage advice makes a real difference.

How is your income calculated?

This is where things get interesting, and where the right lender makes a huge difference.

If you're a sole trader, lenders typically use your net profit from your tax returns.

If you're in a partnership, they'll use your share of the partnership profits.

If you're a limited company director, this is where it varies most. Some lenders will only consider your salary and dividends. Others will also factor in retained profits, which can dramatically increase what you can borrow.

Going to the wrong lender as a company director can mean being offered hundreds of thousands of pounds less than you actually qualify for.

How much can you borrow?

Like any applicant, lenders typically offer between 4 and 5 times your annual income. The challenge is what counts as "income" if you're self-employed.

A broker can calculate this properly based on your accounts or tax returns and find lenders who'll accept the right figures. The difference between a strict and a generous interpretation can be significant.

What if your income varies year to year?

That's common for self-employed applicants, and it doesn't have to be a problem.

Lenders typically use an average of your last two or three years. Some will use the most recent year if your income has grown. The best approach is to find a lender whose criteria suits the way your income looks on paper.

What if you've only just gone self-employed?

It's harder, but not impossible. Some lenders will consider applicants with less than a year of trading, especially if you previously worked in the same field.

If you were a software developer working for a company and you've now started a consultancy doing the same work, lenders will often take a sensible view. The key is finding lenders who specialise in this kind of situation.

How to give yourself the best chance

A few practical things you can do:

• Get your accounts in order and submitted on time
• Keep your business and personal finances separate
• Reduce existing debts where possible before applying
• Avoid taking out new credit in the months leading up to your application
• Speak to a broker who works with self-employed clients regularly

The bottom line

Being self-employed doesn't have to make getting a mortgage harder. It just means going to the right lender, with the right paperwork, and presenting your income properly.

If you'd like to know what your options look like, book a free call with the Kudos Mortgages team. We'll talk through your specific situation and tell you exactly where you stand. No obligation, no jargon, just honest advice.