When it comes to mortgages, lenders tend to view the self-employed as being a higher-risk proposition than those who are employed, for two main reasons:

  1. Income fluctuation. Self-employed people can have a lot of different clients and individual jobs, some months may be less busy than others and, if you take a holiday, you might not have any income at all during that period. Lenders are generally looking for proof of regular income that’s more-or-less guaranteed, and it may be harder to prove consistent earnings at the level you’re looking to borrow.

  2. Long-term viability of your business. Lenders want to be confident that their borrowers will continue to earn into the future and if you’re working on your own account - particularly if you haven’t been doing it for very long - they may have doubts about the viability of your business over the longer-term.

As a result, some lenders might limit how much they’re prepared to lend self-employed applicants, or they may even reject such an application outright.

Sarah Thompson, Group Financial Services Director at Mortgage Scout, says: “If you’re self-employed, working with a specialist broker to get a mortgage can be invaluable. They can guide you through getting together a strong application and will know which lenders are most likely to offer you the mortgage you need, saving you a lot of time and effort.”


How to get a mortgage if youre self employed

Types of self-employment

Self-employment can take different forms, including:

  • Sole trader - You have a business that’s not incorporated, and you probably don’t have any employees.
  • Director or partner of a company – You have a limited company, are more likely to have employees and might share the responsibility for the company with partners.
  • Contractor – You provide services under contract for a specified period of time and may be a sole trader or run your own limited company.
  • Freelancer – Similar to a contractor, but you’re more likely to have multiple clients, shorter-term agreements and one-off jobs, and work more independently. Freelancers also tend to have more irregular income than contractors and be sole traders.

Around 14% of workers in the UK are now self-employed and this figure has almost doubled over the past 50 years. That’s mainly because of the huge rise in ‘solo self-employment’ - people working alone for themselves - who now represent roughly 1 in 8 workers. And this is reflected across a wide range of occupations, from cleaners and drivers, to IT professionals and marketing consultants.

While there is a huge variation in earnings among the self-employed, data shows that, on average, those in the solo self-employment category work fewer hours and earn around 30% less than employed people, and lenders will be aware of these statistics. So, if you do work alone for yourself and are applying for a mortgage, be prepared to have solid evidence of your current earnings, and of your likely earning potential ongoing.


How to get a mortgage if youre self employed 2

Top 5 things to know ahead of making a self-employed mortgage application

Just because the number of mortgage applications from self-employed people has increased, particularly in the last couple of decades, that doesn’t mean lenders have relaxed their criteria! The self-employed are assessed in a different way to the employed, so here are five tips to help you prepare for making an application:

  1. While employed people may only need to supply some recent payslips and a P60, if you’re self-employed, be prepared to typically provide:
    • Two years’ accounts or self-assessment tax returns (some lenders may allow one years’ accounts)
    • Business and personal bank statements
    • Evidence of ongoing contracts and future work engagements
  1. Paperwork-wise, the more up to date and professionally prepared it is, the more favourably a lender is likely to view your application. When you’re self-employed, you’re not just presenting your earnings to a lender, you’ve also got to convince them that your own business, no matter how small, is a professional, profitable operation. Keeping clear records and being supported by an accountant and a specialist broker can make all the difference.
  1. Income-wise, employees are assessed on their standard annual salary, possibly considering bonuses as well. But different lenders can have different ways of evaluating self-employed income and may base it on:
    • Your daily rate
    • The value of ongoing contracts
    • Average annual income

An experienced mortgage broker will be able to assess how best your income stacks up and which is therefore the most appropriate lender to approach.

  1. It’s a common perception that if you’re self-employed, you’ll be charged a higher interest rate. But the reality is, it’s your risk profile that makes a difference to lenders, and that comes down to the stability of your income and the strength of your application. In our experience, it’s entirely possible for self-employed applicants to be able to access the same rates as the employed.
  1. Research has shown that self-employed applicants are around twice as likely to be rejected for a mortgage, but that’s often down to the quality of the application and approaching the wrong lender which is why it’s highly advisable to work with a broker who has a relationship with specialist lenders.

If you are self-employed and would like to talk through your mortgage borrowing options, we’re here to help. You can get in touch with us by completing our online form, chatting with a support agent or calling us directly on 0800 144 4744.

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