There's a common myth that the self-employed find it hard to get a mortgage. While the options will vary, there are a number of competitive solutions. To learn more, it's essential to talk to a knowledgeable mortgage adviser.
A number of lenders specialise in self-employed mortgages and have developed a range options that rely on different criteria.
This can include:
- Lending against your most recent year's income, rather than an average of the last two or three years
- Lending against your company net profit - rather than just salary and dividends to reach a potentially more positive lending amount
- Consideration of your daily rate if you're a contractor.
Lenders will need to see specific documentation if you're self-employed. This will depend on your circumstances and we can advise on exactly what it means for you. It's best to discuss this with us as soon as possible to give you enough time to pull everything together.
Sole trader, director, contractor or partner?
The type of self-employed role you have affects how a lender assesses your suitability. Here's a brief overview of the main considerations:
Most lenders ask for a minimum of two years' of your full trading accounts and personal HMRC tax overviews. They'll typically also take the average of either two or three years' of your net profit before tax.
Some lenders will consider an application if you have only one full trading year, though this depends on your circumstances. For example, have you have switched from employed to self-employed in the same line of work?
In addition to tax overviews, you'll need to provide bank statements showing your trading income. If you use a separate account for business transactions, you'll need to be able to show these account statements to your lender.
A lender may class you as employed, but normally only if your share in the company is small. The threshold varies from 5% upwards, but if it's 20% or more, most lenders will consider you as self-employed.
The lender will usually require additional documentation to show that the business is solvent, and some will take into account your share of profits, in addition to your salary and any dividends.
While contractors are typically company directors, many lenders acknowledge the fact that these arrangements are not the same as a corporate company director. This is reflected in their tailored affordability assessments.
Some lenders will assess contractors using the same affordability assessment as any other company director. However, where this limits the borrowing capacity, there are other options available. The lender can undertake an affordability assessment as if you're employed and reference the gross contract daily rate as income. This will be subject to certain conditions, including history and continuity of contracts.
Lenders take a range of approaches to assess income and affordability for partners in firms. The options available to you will depend on a number of factors. These include the particular structure of pay, the percentage equity holding in your partnership and the size and nature of the partnership itself.
There are tailored options available for partners of different sized firms, ranging from small local businesses to large multi-national firms. You'll need your compensation/drawings/reward statements for the latest year. Ideally, you should have details of the previous one to two years too. You will also need to show details of how you structure your remuneration within the partnership. Lenders may ask for a reference from a senior or managing partner in the business, depending on the circumstances.