Self-Employed Mortgages

Key Takeaways

• You are defined as self-employed if you own 20% or more of a business
• The most common way to verify your income is by using SA302s
• The mortgage products do not differ if you are self-employed but the amount you can borrow may differ between lenders depending on the stability of your income
• It is a good idea to seek advice if you are self-employed to find the most suitable lenders for you
• A minimum of 2 years worth of accounts is preferred, it is possible to provide 1 year, however, supporting income evidence will be required

What is a Self-Employed Mortgage?

A self-employed mortgage refers to the applicant of the loan and their occupation being self-employed. Anyone who is self-employed is defined, for mortgage purposes, as someone who owns 20% or more of a business.

Even if you are employed and receive a salary from your business, for mortgage purposes, you will be defined as self-employed.

In terms of the products offered to you, they are not different from standard mortgages. The difference is the way your income is assessed. It is not acceptable to use payslips for self-employed. The way income is assessed can vary depending on your business structure. 

How is income verified for self-employed Mortgages?

To prove your income for a self-employed mortgage you will need to provide either two years of certified accounts for LTD companies, or two years of SA302 forms from HMRC, if a sole trader. You can additionally provide evidence of upcoming contracts or evidence of dividend payments to support your income.

Obtaining SA302s

The government's website has more information on sa302 and tax year overview statements. You can arrange to obtain them here: Get your SA302 Calculation

How are SA302s used for a Mortgage application?

The income figure that is confirmed on the SA302 document is the figure which will be used for calculations. This is based on business/sole trader profit. If you have had a year where profits have not been as high as previous ones, this will impact the overall loan amount you are eligible for.

Normally, the lender will take an average of your last two years profits to calculate your income.

It is not always the case, but sometimes the lending multipliers can be slightly less for self-employed clients due to the fluctuating nature of income. Generally, this is still 4.5*.

Can Mortgages be agreed with only one year's accounts?

If you only have accounts for one year it may be challenging to have a Mortgage agreed upon, although it is not impossible.

Many high street banks will not consider lending to applicants with just one year's accounts. However, there are specialist lenders in the market who do review these cases with their underwriters. An independent Mortgage adviser will have access to these lenders.

How to find the best self-employed Mortgage lenders

There are Mortgage advisers who specialise in self-employed applications for their clients.

These Advisers have experience in different business circumstances, understanding your accounts and dealing with underwriters for appeals processes. They understand how best to put a case forward to the lenders to support you. 

It is worthwhile speaking to a Mortgage adviser if you are self-employed. As Whole of Market Mortgage advisers have access to a wider panel of lenders, It may be that your regular high-street bank will not be able to help you, but a specialist lender on their panel can.

Finding more information from a Mortgage Adviser could be the difference between buying your dream home or not.

Lenders have different policies when it comes to how they assess self-employed Mortgage applications and for that reason, it can be challenging to navigate the market without adviser support. It will be a great time-saving exercise to deal with an adviser as their systems allow for comparisons that are not available on public searches or online Mortgage applications.

In practice, you could be appointed a lender who has a policy that favors your application more than others. For example, that might be a lender who can assess income with less evidence, or apply a higher multiplier.

Getting a Mortgage as a Contractor

Self-employed contractors or freelancers can still get mortgages. However, the application process is more difficult. Lenders can be cautious due to the fluctuating nature of income. The chances of rejection are higher, but that should not put you off trying. It's important that you know what to expect so you can make arrangements in advance to ensure you have given yourself the best chance of being accepted.

When assessing your income, the policy used will vary from lender to lender. Some lenders will use a 3-year average income from your company accounts. Some will use the average of your last 3 years' SA302s, and some lenders will use your lowest earning year, across a three-year period.

In some cases, lenders will look at your day rate, and multiply it by the number of days and weeks you are expected to work. Prepare to show how many weeks you have worked in previous years.

When calculating the figure to use for affordability purposes, the lender will use your income only that you can evidence. If you have other income, which you cannot prove it will not be taken into account.

If you have a lower salary but keep more money in the business, it might be more suitable to provide company accounts if you are able to. If you can not provide company accounts, the lower salary income figure plus dividends will be used in calculations. This will most likely be verified from SA302s.

The documents you can provide to prove your income are the same as required for other types of self-employment: 

• 3 years SA302s
• Proof of day rate and experience
• Invoices
• Bank statements

Your Mortgage adviser will tell you exactly what is needed when you discuss your needs ahead of an appointment.

Self-Employed Mortgage Advice

If you're self-employed and looking for a mortgage, getting advice from a specialist is crucial. A self-employed mortgage advisor can help navigate the complexities of the process. They understand the unique challenges faced by self-employed individuals and can assist in gathering the necessary documents, demonstrating your income, and finding lenders who are more accommodating to self-employed borrowers. Their expertise ensures you receive tailored advice and have the best chance of securing a mortgage that suits your circumstances.