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What is a Self Employed Mortgage?

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Getting approved for a ‘self employed mortgage’ can be trickier than if you work for a company. But, don’t worry, with the right information and advice, most self employed workers should still be able to get a home loan.

What counts as self employed?

Self-employment can take various forms. The most common are:

  • freelancer
  • sole trader
  • contractor
  • director of a limited company
  • director of a partnership

There’s actually no such thing as a ‘self employed mortgage’. Anyone whose employment status falls into one of the above categories can apply for the same mortgage products as everyone else. These include fixed rate and variable rate mortgages – you can read here more about different mortgage types.

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Always remember: Your home may be repossessed if you do not keep up repayments on your mortgage.

How can I prove my income?

When a PAYE worker applies for a mortgage, they usually use their past three to six months’ payslips to prove their income.

But self employed mortgage applicants won’t normally have payslips and will need to prove their income another way.

In some cases, you’ll need to show lenders certified accounts for two or three years – although some lenders will accept one year’s accounts. Alternatively, some lenders will just want to see evidence of your income from HMRC. This will be either your tax statement or SA302 form.

When calculating your average annual income, lenders will usually calculate your average earnings from the past two or three years, using a net profit (before tax) figure. They will use this income figure, alongside mortgage affordability calculations, to decide whether to lend to you and, if so, how much.

You might also be asked for evidence your business will continue making money going forward. For example, contractors might need to show proof of upcoming contracts while company directors might be asked for proof of dividend payments or retained profits.

It’s always worth to speak to a mortgage adviser to discuss your mortgage options. Our preferred mortgage advisers have a 5-star rating on Trustpilot.

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Always remember: Your home may be repossessed if you do not keep up repayments on your mortgage.

What is an affordability assessment?

All mortgage applicants, both employed and self employed, will need to pass a mortgage lender’s affordability assessment.

During the assessment the lender will look at your income and outgoings to work out if you can afford the mortgage. It will do this by analysing your bank statements.

The assessment will look at your financial commitments such as debt repayments, childcare, and household bills. It may also examine the kind of things you spend your disposable income on such as restaurants, haircuts and holidays.

It’s best to avoid payday loans and online gambling in the six months or so before applying for a mortgage – these are viewed as ‘red flags’ by lenders.

As with all mortgage applications, the bigger the deposit you have relative to the property’s value, the better.

What other documentation do I need for a self employed mortgage application?

Self employed mortgage applicants will also need to show their mortgage lender various documentation in order to get a mortgage. This is likely to include:

  • identity documents
  • proof of your current address
  • evidence of your right to live in the UK
  • proof of where your deposit funds have come from (e.g. savings or a gift).

If you’re applying for a mortgage jointly with someone else, you will both need to provide all the documentation the lender asks for.

Do I need a mortgage broker?

It’s advisable for self employed mortgage applicants to use a mortgage broker. A good broker will be up-to-date with the lending criteria of different lenders. As well as having access to specialist lenders who might focus on self employed borrowers.

A broker will also know how different lenders approach self employed earnings during the pandemic. Mortgages for self employed borrowers have been a controversial issue since 2020 as many freelancers and small businesses saw their income fall during the various lockdowns.

Some lenders have been rejecting applications from self employed borrowers who received money from the Self Employment Income Support Scheme (SEISS). Others will accept borrowers who used SEISS but won’t include the grant amount when calculating the borrower’s income.

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Always remember: Your home may be repossessed if you do not keep up repayments on your mortgage.

Last Updated: December 15th, 2022