If you work for yourself, you’re used to doing things the long way round: your own hours, your own tax, your own paperwork. It probably feels like a mortgage is one more hoop. It’s a different process from being employed, but it isn’t the closed door people sometimes make it sound.
Is it harder to get a mortgage if you’re self-employed?
It’s different rather than harder. An employed person shows a lender a payslip. You show them your tax records, and the lender decides what your income is from those. Get that part right and you borrow on the same basis as anyone else.
When it goes wrong, it’s usually timing or paperwork: applying before there’s enough history, or with figures the lender reads differently from how you see them.
How many years’ accounts do I need?
Most lenders want two years of figures. Some will consider one year, usually when you were doing the same kind of work before you went self-employed. A few will look at less in particular cases.
The documents are usually your tax calculation and tax year overview from HMRC for each year (the tax calculation is often called an SA302), and sometimes accounts prepared by an accountant. Business bank statements may be asked for too.
How much can I borrow if I’m self-employed?
The same multiple applies as for anyone, often up to around four and a half times income. The question is which income.
If you’re a sole trader, lenders use your profit, not your turnover. Some take an average of the last two years, some take the latest year, and if your profit has dropped, most use the lower figure.
If you run a limited company, some lenders look at your salary plus dividends. Others look at your salary plus your share of the company’s net profit, including profit you’ve left in the business. For a director who keeps money in the company, that difference can be large.
If you’re a contractor, some lenders work from your day rate rather than your accounts.
How much do I need to earn for a £200,000 mortgage?
At four and a half times income, roughly £44,500 of income that a lender will count. Those last few words matter. For a sole trader it’s usually profit. For a director it depends on which method the lender uses, which is why two lenders can give the same person very different answers.
Which lenders suit self-employed people?
There isn’t one answer. Lenders differ on how many years they need, which figures they use, and how they treat dividends, retained profit and day rates. Matching how you’re paid to a lender that reads it in a way that works for you is most of what I do for self-employed clients.
Leave room for a quieter year
Self-employed income rarely moves in a straight line. Whatever a lender says you can borrow, check the payment still works in a quieter year. That room is what lets you enjoy the good years without worrying about the slow ones.
What to do next
Pull together two years of tax calculations and tax year overviews, your latest accounts if you have them, and recent bank statements. If you’re planning to buy in the next year or two, it’s worth talking to your accountant and to me before your next tax return goes in, because how you take your income changes what a lender sees. Would it be a bad idea to find out how a lender would read your last two years before you start looking?
And look again each year once your figures are done. A better year can change the answer.
My self-employed page explains how I work with self-employed clients.