• Income Verification:
  • Unlike traditional employees who can provide payslips as proof of income, self-employed individuals need to submit tax returns and other financial records to verify their earnings.
  • Typically, lenders will require 2 to 3 years’ worth of accounts or tax returns to establish a stable and consistent income. In some cases, one year’s records may be sufficient, but this depends on the lender.
  • Income can include:
    • Salary if you’re a limited company director,
    • Dividends,
    • Retained profits (sometimes),
    • Profits from sole proprietorship or partnership.
• Proof of Financial Stability:
  • In addition to showing income, lenders will want proof that your business is sustainable. They may look for evidence such as:
    • Bank statements (personal and business accounts),
    • Contracts with clients, especially if you’re a contractor or freelancer,
    • Profit-and-loss statements for businesses.
  • An accountant’s reference may also be required, especially if your income fluctuates.
• Types of Self-Employment:
  • Lenders consider different types of self-employed individuals, including:
    • Sole traders: Individuals who run their own business and report profits as personal income.
    • Partnerships: Business partnerships where each partner’s share of the profit is treated as their income.
    • Limited company directors: Directors of their own company who usually take a combination of salary and dividends as income.
• Affordability Assessments:
  • Lenders will conduct an affordability assessment based on your average income over the past 2 to 3 years.
  • If your income fluctuates, they may base your mortgage eligibility on the lowest year’s income to ensure you can manage repayments even in a low-earning year.
• Deposit Requirements:
  • Self-employed borrowers may need to provide a larger deposit than salaried employees, particularly if their income is less predictable.
  • Typically, lenders may ask for a deposit of 10% to 20%, though some may still offer mortgages with smaller deposits, particularly if the borrower has a strong credit history and stable income.
• Interest Rates:
  • Interest rates for self-employed mortgages are generally the same as those for standard mortgages, but some lenders might charge slightly higher rates if they perceive additional risk.
  • A strong financial history and a large deposit can help secure better interest rates.

• Tax returns (SA302 forms): Lenders often request your SA302 forms from HMRC, which summarize your earnings and tax payments over the past few years.
• Accountant’s reference: If your accounts are prepared by an accountant, a reference from them may be required. Most lenders prefer accounts signed off by a chartered or certified accountant.
• Business accounts: At least 2 years of business accounts showing profit and loss are generally required.
• Bank statements: You may need to provide personal and business bank statements to show income and expenditure patterns.
• Contracts or evidence of future work: If you’re a contractor or freelancer, evidence of ongoing contracts or regular work can help support your income claims.

1. Irregular Income:
   • Many self-employed individuals have fluctuating incomes, which can make it harder to demonstrate a steady earning pattern. Lenders are cautious about income that isn’t consistent.
   • Lenders will look for stability, so if your income varies significantly from year to year, they may base their calculations on the lowest figure.
2. Lack of Documentation:
   • If you’ve only been self-employed for a short period (less than 2 years), it can be more challenging to qualify for a mortgage, as most lenders require a longer trading history.
   • Some lenders may offer a mortgage with just 1 year of accounts, but you’ll likely need a higher deposit and may face stricter lending criteria.
3. Retained Profits:
   • If you’re a limited company director, some lenders may not consider retained profits (profits that remain within the company rather than being paid out as salary or dividends) as part of your income, even though they are technically under your control.

How to Improve Your Chances of Getting a Self-Employed Mortgage:

1. Prepare Early:
   • Keep accurate and up-to-date financial records. Hire a qualified accountant to ensure your accounts are in order.
   • File tax returns promptly and accurately, as lenders will scrutinize them.
2. Save for a Larger Deposit:
   • Having a larger deposit (e.g., 20% or more) can improve your chances of securing a mortgage, as it reduces the lender’s risk.
3. Maintain a Good Credit Score:
   • Keep up with personal and business debt repayments, and try to improve your credit score by managing credit responsibly. A strong credit history can help offset any concerns about irregular income.
4. Consider a Specialist Lender:
   • If mainstream lenders are cautious, consider approaching specialist mortgage lenders who cater specifically to self-employed individuals. These lenders may be more flexible in assessing income and business performance.