To obtain a self-employed mortgage you will need the following
- Tax Calculation – statement from your Accountant or HMRC system of the details of your self-assessment tax return
- Tax Year Overviews – statement from HMRC of the tax paid against your self-employed income
- Three years figures will work for all Lenders, two years for some, and one year for a few
- Company Directors may need to provide full business accounts to obtain a self-employed mortgage
Important facts for self-employed mortgage applicants
- Your business must be in profit
- Most lenders will average your income over 3 years
- Lenders are not interested in turnover – trading profit is key
- Some lenders will work from the latest trading figures only
- Company Directors do not need to draw the profit to have it considered
- Some self-employed mortgage lenders will work from an Accountant’s reference and not require Tax Calculations
Why the self-employed should use a mortgage broker
Because of the wide variation of circumstances for self-employed mortgage applicants, and the massive variations in how mortgage lenders treat the self-employed, you need someone with experience and expansive knowledge to handle your application successfully.
An experienced independent mortgage broker will know which Lenders are offering the best and most suitable product options for you and will save you time and money.
An experienced independent mortgage broker will know which Lenders will accept your application and which are offering the best and most suitable product options for you.
This will save you time, money, and stress.
How we assist with self-employed mortgages
We specialise in helping the self-employed obtain mortgage funding. Whether you are new in business or an old hand.
Sole Trader? Partnership? Limited Company? We can assist.
Use our guides below to assess what you will require to obtain your mortgage as a self-employed applicant.
Established business – PAYE Income
Status – Your business can show over three years of trading figures with regular, healthy, and increasing profits.
A limited company director is paid by PAYE at a level sufficient to support the mortgage with ownership of over 25% of the business.
An applicant trading as a Partnership has a sizeable share of the business profit and has Tax Calculations and Tax Year Overviews covering three years to confirm income.
A sole trader has Tax Calculations and Tax Year Overviews covering three years to confirm income.
Likely Result – assuming a clean credit record
Many mortgage lenders will welcome your application and underwriting should not prove too difficult.
Established self-employed – provable profit
Status – Your business can show at least three years of trading figures with regular, healthy, sustained or increasing profit.
A limited company director is paid by PAYE at a level sufficient to support the mortgage with ownership of over 25% of the business or receives PAYE and dividends at a level that can be supported by the business profit.
An applicant trading as a Partnership has a sizeable share of the business profit.
A sole trader has Tax Calculations and Tax Year Overviews covering three years to confirm income.
Likely Result – assuming a clean credit record
Most mortgage lenders will welcome your application and, provided a suitable lender is selected, underwriting should not prove too difficult.
Self-employed – Established business – low PAYE, mainly dividends
Status – established business.
Your business can show at least three years of trading figures with regular, healthy, sustained or increasing profit.
A limited company director is paid by PAYE at a nominal level and receives the bulk of their income from the business as dividends. The applicant has ownership of over 25% of the business.
The income received can be supported by the business profit.
An applicant trading as a Partnership has a sizeable share of the business profit and has Tax Calculations and Tax Year Overviews covering three years to confirm income.
A sole trader has Tax Calculations and Tax Year Overviews covering three years to confirm income.
Likely Result – assuming a clean credit record
Many mortgage lenders will welcome your application and, provided a suitable lender is selected, underwriting should be possible. Some lenders will not consider your dividend income.
New as self-employed – provable profit
Status – two years of self-employed trading – good trading figures.
Your business can show at least two years of trading figures with sustained or increasing profit.
A limited company director is paid by PAYE at a nominal level and receives the bulk of their income from the business as dividends. Or the business is trading profitably, and the directors have chosen to retain profit within the business.
An applicant trading as a Partnership has a sizeable share of the business profit and has Tax Calculations and Tax Year Overviews at least one year to confirm income.
A sole trader has Tax Calculations and Tax Year Overviews covering one or two years to confirm income.
Likely Result – assuming a clean credit record
Underwriting should be possible, but the list of potential lenders is very limited.
Newly self-employed – not yet in profit
Status – trading self-employed under 24 months.
Your business has been trading for less than 24 months, but you can show one year’s trading figures, good cash flow, and the potential for profit going forward.
A limited company director cannot show strong current PAYE or dividend income.
There is limited trading profit provable with a Partnership.
A sole trader has one year’s Tax Calculations and Tax Year Overviews showing minimal profit.
Likely Result – assuming a clean credit record
Underwriting will be very difficult and your application needs to go to a specialised lending source.
Unless your business is realistically capable of evidencing potential for strong further profits, you are unlikely to be successful.
Self-Employed – Bad credit history
Status – good self-employed profit – poor credit file.
You are self-employed and can prove profit over three years but have a blemish on your credit record such as a default, or CCJ.
Limited company directors can provide three years of accounts showing a sensible profit.
Owners of Partnerships can show Tax Calculations and Tax Year Overviews covering three years to confirm income.
Sole traders can show Tax Calculations and Tax Year Overviews covering three years to confirm income.
Likely Result
Lending may be possible through selected channels – each case will be assessed on its own merit. Expect to put down a larger deposit and pay a higher interest rate.
Self-employment and arranging a mortgage
One of the most difficult areas when arranging mortgages for clients in today’s market is helping self-employed applicants. This is particularly the case since the withdrawal of self-certified mortgages from the market.
The Rise of the Tax Calculation and Tax Year Overview
Lenders have taken to using Tax Calculations and Tax Year Overviews to confirm income form as evidence of income to underwrite self-employed mortgages. If you are self-employed, you may find that arranging a mortgage or re-mortgage is more complex than expected. This is due to the differing attitudes of Lenders to trading styles and methods of drawing personal income.
For this reason, we suggest you always seek advice from an Independent Mortgage Broker when arranging a mortgage as a self-employed applicant.
Where the Self-Employed applicant has three years of accounts that show a suitable net profit (after business expenses), matters may progress fairly smoothly. The difficulties arise when the Mortgage applicant is running a start-up business and has been trading for less than three years. They may show minimal or no profit despite good turnover and bright prospects for the business in the years ahead.
Sole Traders, Partnerships, Limited Companies?
Self-Employed mortgage applications are further complicated by the various ways in which the Self-Employed trade. Sole Traders, Partnerships, and Limited Company Directors are all treated differently by Lenders when underwriting mortgages. Add to the mix Limited Liability Partnerships and zero equity Partners, and you have a recipe for complication and disappointment if your Self-Employed Mortgage Application is not handled by an experienced Independent Mortgage Broker.
Self Cert Mortgages
Self cert or self-certified mortgages were the solution up until 2009 when the mortgage market lost its appetite for offering them.
Under a self cert mortgage, the Lender would rely on credit score and deposit to manage their risk. This was very effective for the Self-Employed applicant who was building a good business but could not support their mortgage application with accounts. The problem came when applications started to come in from applicants who were running failing or unprofitable businesses.
In short, the concept of self-certified mortgages was sound – the implementation of them was flawed.
Today’s Self-Employed Mortgage solution
Having spoken to many Lenders on this issue over the past four years, we now have an exclusive Self-Employed Mortgage product that provides a unique opportunity for our newly Self-Employed applicants to raise mortgage funds with limited accounts.
We can now offer mortgages for the Self-Employed with a minimum of just 12 months in business.
Frequently Asked Questions
How many years do you have to be self-employed to get a mortgage?
Most mortgage lenders will want a self-employed track record of two or three years to arrange a mortgage. Some will work on one year’s figures.