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Self-employed mortgages
How to prepare paperwork, speak with brokers and compare rates
Updated 12 July 2024
More than four million people in the UK are self-employed, equivalent to around 12% of the country's workforce. If you're one of them, getting a self-employed mortgage can be challenging and sometimes feels like you're being forced through extra hoops. This guide explains how to boost your chances of mortgage acceptance, what documentation to gather and how to narrow down the right deal for you.
Thanks to mortgage brokers CMME and Mortgage Advice Bureau for fact-checking this guide.
Why being self-employed can make it difficult to get a mortgage
It's well known that getting a mortgage can be tougher if you're self-employed (though this isn't always the case).
Here's a general overview of why you might struggle:
- Where you've got an 'irregular' income. Generally speaking, mortgage lenders prefer borrowers to have a steady level of income. This can be harder to prove if you're self-employed – for example, if business has been slow or you've recently taken some time off. Slower months can bring down your 'typical' or 'average' income in the eyes of a lender, which in turn could limit how much you're able to borrow.
Later on we'll show you ways of increasing the level of income a mortgage lender might take into consideration when assessing your application (see chapters on How much can I borrow? and Boost your mortgage chances).
- If you're on the border of 'affordability'. It's a pretty loose term, but lenders have to be sure a mortgage is 'affordable' to the borrower. This is mainly done by stress-testing whether you could afford mortgage repayments in the event interest ways were to increase by 1%, 2% or even 3% – something that'll be tough for many borrowers.
Even if you pass the stress test, it's still possible a lender won't deem you affordable if it's not convinced by your business's long-term viability or stability. A lender might have its doubts about your business's long-term prospects – maybe because of the sector you're in, or because you've just started out being self-employed – which could limit how much you're able to borrow or cause your application to be rejected outright.
Sadly, details of a lender's definition of affordable is rarely public knowledge and is subject to change. That's why speaking to a mortgage broker can be invaluable, as they have access to this kind of information.
- If you don't know the best lender to approach. The default position of some mortgage lenders is that it's riskier to lend to the self-employed than the employed (rightly or wrongly). This means if you're self-employed, you're at risk of wasting a mortgage application on a cautious lender – and too many rejections can be a cause for rejection in its own right.
To make things trickier, some lenders use algorithms and automated assessments when considering mortgage applications. This might be a problem if you've got a more complex income and would benefit from a manual underwriter – again, this kind of information isn't something that's usually publicly available.
While there's not much you can do about lenders being cautious, if you speak to a mortgage broker they can advise about the best lenders to approach.
You might be feeling that getting a mortgage if you're self-employed is too much of a challenge, but that doesn't have to be the case – self-employed people get mortgages all the time. If you've done the numbers and believe you could afford a mortgage, a few extra hurdles shouldn't put you off.
Yet it's good to be aware of the possible challenges ahead. Expect your finances to be scrutinised and provide plenty of paperwork, even if you're a well-established business.
Will a lender actually class you as self-employed?
While the exact definition varies by mortgage lender, in very simple terms you'll generally be considered 'self-employed' if you own at least 20-25% of a business whose proceeds make up your primary income.
In reality though, there are several ways of working for yourself. This could include (but isn't limited to) the following business models:
- Sole trader. This is where you own and run a business by yourself (responsibility is solely yours). Sole traders can have employees too, but the sole trader remains in charge of the business.
- Contractor. Typically, this is where you provide services or skills to another business for a set or contracted period of time – be it in hours or project duration. A contractor could be a sole-trader or run their own limited company.
- Director / partner of a limited company. This is where responsibility for a business is shared between directors / partners / shareholders (it's not solely one person's responsibility).
In general terms, you'll likely to be considered self-employed if you're responsible for the success or failure of a business – be that solely or jointly.
Freelancers
If you're a freelancer you'll probably be considered self-employed, falling under the sole trader or contractor categories (performing work for set periods of time or completing individual projects).
Agency & 'umbrella' workers
In most cases, agency workers – and agency workers who are paid via an 'umbrella' company – are unlikely to be considered self-employed. However, agency and umbrella workers can experience similar difficulties to the self-employed when trying to get a mortgage, such as proving a regular income.
If you're an agency or umbrella worker, it's best to speak to a mortgage broker.
While this guide isn't specifically aimed at agency and umbrella workers, there are some sections which can help, such as Working out how much can you borrow, Boosting your mortgage chances and Finding a good mortgage deal.
Work out how much you might be able to borrow
There's no one-size-fits-all answer to this question. Lenders used to simply multiply your income by up to five times, but these days they need to check the affordability of the mortgage as well.
In other words, you need to show the lender you can afford the repayments. While this can be easier to estimate for employees, for the self-employed it'll really depend on your circumstances.
Our How much can I borrow? guide highlights the things lenders will take into account when working out how much to actually lend to you. Want to get a more specific idea of how much you might be able to borrow? Have a play around with our Affordability calculator.
In brief, the following factors can impact how much you're able to borrow:
- How many people are applying for the mortgage? Are you a solo applicant or are there two of you? More than one income will likely boost the amount you can borrow.
- Your total outgoings each month. Lenders will want to know how much you typically spend on bills, food, leisure, credit and loans repayments and more. Many lenders will also use Office for National Statistics information to work supplement these details, and they might also factor in an extra safety margin.
- Could you still afford the mortgage if interest rates shot up? Lenders will want to see proof that you could afford mortgage rates at their current level, but also if you'd still be able to cope if rates increased further (known as stress-testing).
- Are you creditworthy? Your credit file holds details of your credit history, and a poor report can be a real blocker. Some lenders credit score differently, and these scoring systems can change over time. To make things even more complicated, some lenders score differently depending on what your loan-to-value (LTV) is – for example, there might be a tougher test at 90% LTV than 85% LTV.
If you don't convince a lender based on the facts above, you might find the amount you're able to borrow is capped – or you could be rejected altogether.
If you're not able to borrow as much as you want to, you might need to consider cheaper properties, or look at homebuying schemes such as Shared ownership.
Here are some other limitations to be aware of:
- Lenders generally tend to cap borrowing at around four-and-a-half times your income. You might find that there are some lenders who are willing to stretch this though – possibly up to 5.5x. The best way to find out is by speaking with a mortgage broker.
- Some lenders further restrict how much the self-employed are allowed to borrow. For example, some lenders restrict how much you're able to borrow once you reach a certain loan-to-value (LTV). Others simply won't lend to the self-employed above certain LTVs.
- Lenders might take into account business costs in your own name rather than your company's name. For example, a car lease in a mortgage applicant's name will typically be included when a lender assesses you for affordability purposes, even though it could be treated as a business cost for tax purposes.
You'll often have greater borrowing power as part of a joint application
Where two of you are making joint mortgage application, your borrowing limit will most likely be higher than if you applied by yourself, as there'll be two sets of income supporting the application.
With joint mortgage applications, it doesn't matter if one of you is self-employed and the other is employed, or if you're both employed, both self-employed, or if only one of you has a job – all of these combinations work.
As any self-employed borrower is likely to come under greater scrutiny than an employed borrower though, it's worth naming an employed borrower as the lead applicant where possible.
Boost your mortgage chances
Before applying for any kind of mortgage, it's vital to do what you can to boost your chances of acceptance. This is especially important for the self-employed.
While there is no way of ensuring acceptance, there are many helps you can do to improve the odds. Our Boost your mortgage chances guide has 17 top tips, but here are a few of the standout points:
- Check your credit report before the lender does. Making sure your credit report is in tip-top shape is vital, as your report will significantly affect the decision whether to lend to you or not. It's easy enough to check your credit file for free – after that, set some time aside to improve your credit report.
- Don't apply for credit shortly before a mortgage. Applications for credit leave a mark on your credit file (known as a 'hard search'). Having these on your file in the months before applying for a mortgage can make you look desperate for credit and cause affordability issues.
This also applies if you need to remortgage. For instance, if you maxed out your affordability when you first bought your home and you're still on the border of affordability now, extra credit applications might scupper your changes of getting a new deal.
- Register to vote. If you're not on the electoral roll, this can be a deal-breaker. Check your credit file or with your local council to see if you're already on it – if not, then register to vote for free.
- Build up a decent deposit. Generally speaking, the bigger your deposit, the more likely you are to accepted in the first place, the more you'll be able to borrow, and the greater the chance of accessing to better mortgage rates. One way of easily boosting your deposit is by opening a Lifetime ISA.
- Cut back on spending before you make your move. Lenders will look at your bank statements going back at least three months (sometimes further) to check your outgoings, which'll help them decide if you could afford mortgage repayments.
- Limit the amount of expenses you sign off. If you sign off lots of business expenses in the months before applying, this could make it look like you've got a smaller income than is actually the case.
- Avoid changes to your business model. Where you switch from being a sole trader to a limited company, some lenders will consider you a brand new business – even if you've been trading for years. If you do switch business models, you'll find you have more lenders willing to lend to you once you've got at least one year's trading accounts.
- Ensure good record-keeping. Even businesses with stable incomes might find it harder to get accepted if their record-keeping is poor, so make sure you're organised in order to clearly prove your affordability.
- Get an 'agreement in principle'. This is a conditional offer saying you may be accepted for a mortgage, based on a quick check of your income and, most likely, your credit file. While it's no guarantee of acceptance, if you're rejected for a agreement in principle, it's a sign you need to go back and check your credit file again.
If you're looking to remortgage specifically, many of the tips above apply. However, there's even more for you to consider – see our Getting ready to remortgage guide.
Get your paperwork ready
Once you've done what you can to boost your mortgage chances, it'll be time to start gathering the paperwork that'll support your application.
Don't leave it to the last minute to begin this process, as it can be stressful enough without having to scramble around for documents. The documents you need will depend on your lender and how your business operates, but will likely include:
- Bank statements. You'll typically need three months worth of bank statements (some lenders require up to six). This will show what's in your account, your incomings and outgoings. Lenders will want to see how much you typically spend on the following: bills, commuting, holidays, childcare, credit card and loan repayments, etc.
- Trading accounts. You'll typically need two years worth of these, sometimes three. Lenders tend to look at your average net profit (not turnover).
Note. Lenders tend to prefer if your accounts have been prepared by a chartered accountant, so they can be sure of your reliability. If they're not, you might find that you've fewer lenders to choose between.
- Tax year overviews / SA302 forms. Again, you'll typically need between two years worth of these, sometimes three. Many lenders need these alongside your trading accounts, though with some smaller lenders these forms can be used in place of accounts.
- Evidence of current / upcoming work. You'll more likely be asked to provide this if you're a contractor or director of a limited company. For contractors, lenders might want to see signed contracts relating to ongoing and upcoming work. Company directors might be asked to provide projected income statements and business plans.
- Proof of deposit. You can do this by providing copies of bank account / savings account statements.
- Proof of identification. This is to prove who you are and where you live. Expect to have to show copies of a number of documents, including your passport, driving licence, utility bill, council tax bill.
When you're a contractor, it might also help if you've prepared an up-to-date CV. This simply needs to be a list of contracts undertaken. The more robust this is, the more it highlights to lenders your ability to successfully move between jobs and continue to gain further employment. It can also help to highlight areas of specialism and sectors.
What if I've not been self-employed for long?
Where you've got less than two years of documents, getting accepted for a mortgage can be more challenging. It's not impossible, but you'll have a smaller pool of lenders to choose from.
Those that are willing to consider you will really scrutinise your affordability, and they might even require you to have had previous experience in your field of work before your business was founded. Evidence of regular and upcoming work will help with your application.
If you're on a fixed-term contract for the first time, you may find that many lenders will not support your mortgage application until the first 12 months under contract have been completed. Some lenders will consider an application sooner than this, but again this is typically subject to evidence of prior experience in a similar profession.
If you've got less than two years of accounts, it's really worth seeking the advice of a mortgage broker.
What happens if I've got gaps in my work history?
Significant gaps between contracts can sometimes hinder an application. It's not made any easier that this issue is treated differently between lenders.
As a general rule of thumb, any gap longer than eight weeks will be a potential issue. If the time was taken for professional development or a significant life event, some lenders may consider an application, but it's wise to check this before applying.
Compare mortgage deals
To start comparing deals you'll need to know how much you've got as a deposit and the price of the property you're looking to buy (or rough price, if you've not found a property yet).
Your deposit is important because the interest rate you'll get will depend on how much money you're borrowing, compared to the total value of the property. This is know as the is known loan-to-value (LTV), and is expressed as a percentage. Generally speaking, the smaller your LTV, the better interest rates become.
Our Cheap mortgage finding guide walks you through how to compare mortgage deals more comprehensively, but in brief:
- Get an idea of how much you'll likely be able to borrow. There's no point comparing mortgage rates if you're not confident you're going to be able to borrow the amount you need. So use our Affordability calculator to get a rough estimate of how much you might be able to borrow in the first instance. If it indicates you'll struggle to borrow the amount you want, you could consider getting a bigger deposit together or going for a cheaper property.
- Benchmark a good rate by using MSE's best buys tool. If the affordability calculator indicates you might be able to borrow the amount you need, you can start comparing mortgage rates with more confidence. Enter some basic information such as the size of your deposit and the price of the property you want to buy into our Mortgage best buys tool – it'll list most mortgage deals on the market at any one time.
Not sure the difference between a fixed-rate mortgage and variable rate mortgage (such as a tracker or discount deal)? We've got a guide on the different types of mortgages available.
- Speak to a mortgage broker. Brokers scour the market to find you a good mortgage deal, and often have access to deals not available directly to the public. Brokers are also familiar with the key details about lenders' borrowing criteria, which can be really helpful if you've got a complex income or application. Some brokers are free for to use, while others charge a fee you. Our Cheap mortgage finding guide helps you compare brokers, and includes a list of our top broker picks.
- Finally check any deals that brokers miss. Just to ensure you've not missed any deals that your broker didn't spot themselves (or doesn't have access to), have another look on our Mortgage best buys tool. If your broker is a 'whole-of-market' broker, this bit likely won't flag anything new.
Is it worth paying for a specialist broker or lender?
Many of MSE's top broker picks are free for you to use, and will be able to look for mortgages for you if you're self-employed. However, if you feel like you'd struggle to be accepted for a mortgage – perhaps because you've got a complex income – you might want to consider seeking a broker with a proven track record of dealing with self-employed applicants.
Specialist brokers typically charge a fee. So, you'll need to weigh up whether it's worth paying a fee in exchange for, hopefully, an increased chance of getting a mortgage. This'll depend on how complex your situation is. CMME is one of our top mortgage broker picks and specialises in self-employed mortgages, so they might be a good starting point.
Remortgaging if you're self-employed
Where you're looking to remortgage, make sure you check what kind of new deals your existing lender is offering. Getting a new deal from your current lender is known as a 'product transfer', and recently lenders have been offering competiitve rates to existing borrowers. Use what it's offering as a benchmark to beat.
Don't leave it too late to start the remortgaging process, otherwise you run the risk of ending up on your lender's expensive standard variable rate (the rate your mortgage reverts to when your current deal ends).
Many lenders actually allow you to lock in a new rate up to six months in advance, meaning you could secure a deal that's available today to start later. There are pros and cons to doing this though, explained in our Getting ready to remortgage guide.
Finally, make sure you consider whether any of your finances or lifestyle factors have changed significantly since you took out your last mortgage, as such changes could impact what is right for you – more information in our Which mortgage to choose guide.
Self-employed mortgage FAQs
Looking for more mortgage help?
We've got lots of other helpful guides and tools:
- First-time buyers' guide. Top tips to get you on that first rung.
- Mortgage best buys. Quickly compare the market's top deals.
- Remortgage guide. How to prepare yourself for remortgaging.
- What type of mortgage to choose. A fix, tracker, discount mortgage?
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