Being self-employed doesn’t mean you can’t get a mortgage. Plenty of sole traders, contractors and company directors buy homes every year. But lenders assess your income differently from an employee’s, and it often takes more preparation to get the result you want.

How lenders view self-employed income

With an employee, a lender can look at payslips and a contract. With self-employment, income can go up and down, so lenders want evidence that it’s sustainable. Most will want to see at least two years of trading history, although some will consider applicants with one year’s figures, particularly if they have worked in the same field before.

What documents you’ll need

• Tax calculations and tax year overviews from HMRC (sometimes known as SA302s) for the last two or three years
• Business accounts, ideally prepared by a qualified accountant
• Business and personal bank statements
• An accountant’s reference, which some lenders request

Which income do they use?

This depends on how your business is structured, and it’s where lenders differ most.

• Sole traders are usually assessed on net profit. Some lenders take the latest year; others take an average of the last two or three years.
• Limited company directors are often assessed on salary plus dividends. Some lenders will instead consider your share of the company’s net profit, which can help if you’ve kept money in the business.
• Contractors may be assessed on their day rate multiplied into an annual figure, depending on the lender and type of contract.

Because approaches vary so much, the same person could be offered very different amounts by different lenders.

The tax planning trade-off

Many self-employed people keep their declared income low to reduce their tax bill. That’s perfectly legitimate, but it can reduce the amount a lender will offer. If you’re planning to buy in the next year or two, it’s worth talking to your accountant and a mortgage broker together about how your income will look on paper.

Tips to improve your chances

• Keep your accounts up to date and filed on time.
• Separate business and personal finances.
• Look after your credit file and avoid new borrowing before applying.
• Explain any dip in income, such as a one-off investment or time off, clearly and with evidence.
• Save a larger deposit if possible, as this widens your choice of lenders.

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

We regularly help self-employed clients find lenders that understand how their income works. Get in touch for a free consultation, and bring your latest accounts.