Self-employed
Self-employed mortgages, assessed on the right figure
Being self-employed does not make a mortgage harder to get — it makes it harder to get from the wrong lender. The amount you can borrow can vary by tens of thousands of pounds depending on whether a lender uses your drawings, your net profit or the profit left in your company. With 40+ years of experience we know which lender to put your figures in front of.
How lenders look at self-employed income
Sole trader or director changes everything
Sole traders are assessed on net profit before tax. Directors are usually assessed on salary plus dividends — unless we place you with a lender that counts company profit.
Retained profit can count
If you leave money in the business for tax reasons, a small group of lenders will still include your share of it. That is often the single biggest swing in what you can borrow.
One year of accounts is possible
Two years is the norm, but there are lenders who will lend on a single completed tax year, particularly where you did the same work as an employee beforehand.
A down year needs an explanation
Most lenders use the latest figure when it is lower. A short note from your accountant explaining a one-off cost or gap can keep the better lenders in play.
Self-employed mortgage questions
The questions sole traders, partners and company directors ask us most.
- How many years of accounts do I need to get a mortgage?
- Most lenders want two full years, and will average the two or use the most recent figure if it is lower. A smaller group of lenders will consider one year of accounts or a first year of self-assessment, usually where the trade continues work you did previously as an employee. There are also lenders who will look at a projection from your accountant, though they are the exception.
- Which figure do lenders use — turnover, net profit or what I pay myself?
- Never turnover. If you are a sole trader or in a partnership they use net profit before tax, taken from your SA302 or tax calculation. If you trade through a limited company they normally use salary plus dividends drawn. A handful of lenders will instead use salary plus your share of net profit after corporation tax, which is often much higher.
- I leave profit in my company — can that be used?
- Yes, with the right lender. Retained or undrawn profit is ignored by most high-street lenders but a number of lenders will include your share of company net profit whether or not you took it out as dividends. For directors who keep money in the business, this one difference often changes the maximum loan considerably.
- What paperwork will I be asked for?
- Typically the last two years' SA302s or tax calculations with matching tax year overviews from HMRC, or two years of finalised accounts signed off by a qualified accountant, plus three to six months of business and personal bank statements. Limited company directors may also be asked for the latest company accounts.
- My latest year was down on the year before — does that stop me?
- Not automatically, but most lenders will use the lower, most recent figure rather than the average, so the amount you can borrow falls. If the drop has a clear one-off explanation — a large equipment purchase, a period of illness, a single lost contract — some lenders will listen to that with a supporting note from your accountant. It is worth putting the case in writing.
- Do self-employed people pay higher mortgage rates?
- No. The same rates are available to you as to an employed applicant with the same deposit and credit profile. The difference is in how income is evidenced and which lenders will accept your particular set-up, not in the price.