We understand the challenges self-employed individuals face when applying for a mortgage. Unlike traditional employees with fixed salaries, self-employed professionals often need to provide additional proof of income. However, getting a self-employed mortgage is entirely possible with the right preparation.
Why Self-Employment Mortgages Are Different
Traditional lenders prefer straightforward proof of income: a payslip and a letter from your employer confirming your salary. Self-employed applicants must provide more:
- Tax Calculations + Tax Year Overviews showing actual business income
- Limited Company Accounts demonstrating profitability
- Bank statements showing regular business income
- Additional documentation proving income stability
The Lender's Concern
As a self-employed individual, you don't have a permanent contract with guaranteed hours. Lenders needs to take a longer term view of your earnings to asesss how much they are willing to lend.
How Long Do You Need to Be Self-Employed?
Minimum 1 Years self employed
Most traditional lenders require at least 2 years of self-employment history, however, many lenders will accept 1 years of self employed history. This means:
- You must have been trading for a minimum of 1 years
- You must provide at least 1 years Tax Calculations + Tax Year Overviews if you are self employed, plus 1 years Limited Company Accounts if you are a limited company director.
- Your most recent set of accounts cannot be more than 21 months old
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Income Assessment: How Do Lenders Calculate What You Can Borrow?
Lenders typically use one of the following methods
Sold Traders
Method 1: Average net profit over the last 2 years
Calculate your average net profit over the last 2 years and use this as your borrowing basis.
Example:
- Year 1 income: £50,000
- Year 2 income: £60,000
- Average: £55,000
Method 2: Using your latest years net profit
Using your latest (or only) net profit figures, and use this as your borrowing basis.
Example:
- Year 1 income: £50,000
- Usable income: £50,000
Method 3: Using your latest years net profit averaged with next years projected profits
Using your latest net profit figures, averaged with your next trading year projection, and use this as your borrowing basis.
Example:
- Latest net profit: £50,000
- Next years projected profit: £80,000
- Average: £65,000
Limited Company Directors
Method 1: Company Net Profit + Directors Salary averaged over the last 2 years
Use your company's net profit before or after tax as your borrowing basis.
Example:
- Year 1: Net profit of £50,000 + Directors Salary of £12,570
- Year 2: Net profit of £60,000 + Directors Salary of £12,570
- Average: £67,570
Method 2: Latest years Company Net Profit + Directors Salary
Use your company's net profit before or after tax as your borrowing basis.
Example:
- Latest year: Net Profit of £60,000 + Directors Salary of £12,570
- Usable income: £72,570
Method 3: Using your latest years company profit averaged with next years projected profits
Using your latest company net profit figures, averaged with your next trading year projection, and use this as your borrowing basis.
Example:
- Latest year: Net profit of £60,000 + Directors Salary of £12,570
- Projected year: Net profit of £90,000 + Directors Salary of £12,570
- Average: £87,570
Other notable points;
- Some lenders will use company profits before corporation tax
- Some lenders will add expenses, such as directors pension contributions, back in to your net profits
Documentation You'll Need
Essential Documents
- Tax calculations (SA302) for the last 2 years
- Tax year overview documents from HMRC
- Full accounts or bookkeeping records
- Business bank statements (3 months minimum)
- Personal bank statements (3 months minimum)
- Identification
- Proof of deposit
Strengthen Your Self-Employed Mortgage Application
1. Prepare Accounts Early
Don't wait until the last minute to prepare your accounts. Get them filed with Companies House (if a limited company) well in advance of your mortgage application.
2. Build and Maintain Good Credit
Self-employed applicants with excellent credit scores have a better chance of approval than those with average credit.
3. Work With a Specialist Lender
Some lenders specialise in self-employed mortgages. They understand business income variability and are often more flexible with documentation.
4. Work With a Specialist Broker
Specialist brokers like Quanstrom Financial understand how the different lenders treat self-employed applications. Get in contact to give yourself the best change of securing your dream home.
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BTL (Buy-to-Let) Mortgages
If you're self-employed and investing in rental property, BTL mortgages are often easier to secure than residential mortgages because lenders can assess based on projected rental income.
The key is preparation and transparency. Start gathering documents early, get your accounts in order, and approach brokers who can place you with a lender who understands self-employed lending.
📞 Need help with a self-employed mortgage? Call 01323 364432
📧 Email info@quanstromfinancial.co.uk
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