Self-employed mortgages

If you can prove that you have consistent or solid earnings and a decent income history, you should be able to access the same rates and deals as salaried employees.

How do you prove your income when applying for a mortgage?

If you’re self-employed rather than in standard full-time employment, things are a bit different when it comes to proving your income.

There are a couple of golden rules. First, if you own a limited company, you need to get your income paperwork put together by an accountant – that way the lender can be fully confident that the figures you’ve put forward are accurate.

Second, it’s important you understand these figures and your income history – because you’ll be asked about them by your mortgage adviser.

Lenders will ask you for different information based on what type of self-employment you’re in (the exact requirements will vary from lender to lender).

If you’re a sole trader or landlord

You’ll almost certainly need to provide your SA302s/tax calculations and tax year overviews for at least the last two years.

Many lenders will accept tax calculations and tax year overviews that customers, or their accountants, have printed themselves from their HMRC online account, but double-check with the lender or your mortgage adviser – paperwork delays are the biggest issue when it comes to a smooth mortgage application.

If you’re self-employed in a limited company

You’ll need to show your tax year calculations, tax year overview and the company accounts for the last two years.

That way, lenders will be able to take into account both your basic salary and any dividend payments you get.

How much can you borrow if you’re self-employed?

The short answer is: it depends. Whenever anyone applies for a mortgage, the lender carries out an “affordability assessment” to work out how much to lend you – and whether they’re willing to lend to you at all.

How much you can borrow will then depend on how secure the lender feels about lending to you and what your other spending commitments are. To test your likelihood for a mortgage approval, lenders will look at:

How much you earn on average

If you’ve been contracting or freelancing for a few years, the lender will most likely work out your average earnings.

For example, if you earned £20,000 in your first year of contracting, £25,000 in your second year and £30,000 in your third year, the lender may assume that your average salary for the sake of the mortgage application is £25,000.

Or, where your earnings have been incrementally increasing, a lender may base their calculation on your most recent tax year figure.

As a rule of thumb, if you’ve got a decent deposit to put down (say 10% of the property price) and your self-employed income is consistent and well-documented, you should be able to borrow around 4.5 to 4.75 times your gross annual income (for example, your salary before it’s taxed).

What is your regular expenditure?

Mortgage lenders have to be able to prove that they’ve lent responsibly. To get accurate feedback, they look closely at how much a borrower can realistically afford to pay back each month.

Lenders need to know what your personal and living expenses are like. Which is why, even though some of this information can feel rather intrusive, you should be prepared to show any or all of these payments:

Evidence of credit card repayments
Evidence of any maintenance payments
Insurance contracts (buildings, contents, life, etc)
Any other loans or credit agreements
Household bills (water, gas, electricity, phone, broadband, etc)
Estimates of general living costs (spending on clothes, groceries, childcare, going out, holidays, etc.)

Your property may be repossessed if you do not keep up repayments on your mortgage.

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