Mortgages for the self employed

Despite the myths, being self employed doesn’t mean it’s harder to get a mortgage, it just means there is a lot more for lenders to consider.

A common problem lenders face when deciding how much to lend to you is the difficulty of establishing your regular income. For example, some lenders will set the amount you can borrow based on your previous 2 or 3 years income. But others will calculate it on your previous year of trading. You may have periods in your business that are quieter than others, or periods that are very busy and this may affect the amount a lender would offer you. For limited companies, lenders look at salary and dividends, or in some circumstances salary and net profit of the company. For sole traders or partnerships, lenders will take net profits as income.

You will need to provide lenders with at least two years of company accounts or tax returns, some will ask for three years. If you are self employed as a contractor you may be asked to provide proof of work you have lined up for the future. This is to show them that your current income levels can be maintained.

Something the self employed should be aware of is what your accountant does. As part of their job they will try to minimise your tax bill by using legitimate ways to reduce your taxable income, but this could work against you when applying for a mortgage.

There’s no such thing as a ‘self-employed mortgage’, it’s simply a normal mortgage but you will just have to jump through a few more hoops to prove your income than someone who is employed.

We would recommend taking professional financial advice when looking for a mortgage to ensure things go as smoothly as possible.

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