Buying a Home When Self-Employed

You are self-employed if:

• You own over 20% of a business from which you earn your main income
• You’re a sole trader (contractor or freelancer)
• You’re the director of a registered limited company
• You’re a partner in a partnership or limited company

Lenders typically want to see the last two to three years of tax calculations and overviews. They’ll calculate the average of your earnings and decide how much to lend you. If you haven’t been self-employed for this long but have been working full-time, the payslips from this time can be accepted.

Mortgage brokers can help. They can advise on the best deal for your circumstances.

To buy a home when self-employed, you’ll need to provide lenders with the following documents:

• Two or three years’ worth of SA302s or tax overviews from HMRC
• Evidence of upcoming contracts (if you’re a contractor)
• Evidence of dividend payments or retained profits (if you’re a company director)
• Proof of ID and address
• Six months’ worth of bank statements
• Proof of any savings account
• Other expenses (childcare, household bills, holidays, etc.)

How much you can borrow when self-employed depends on several factors, including your income and outgoings.

Lenders will look at the following:

• How much you earn
• Your regular outgoings
• How much your earnings fluctuate

1. How much you earn

Your income is the first thing lenders consider to determine your mortgage affordability. If you’ve been freelancing for two years, they’ll sum up your annual income from each year to calculate the average.

Generally, if you have a 10% deposit and have been self-employed for two years, you can borrow around 4.5 times your gross annual income.

2. What your regular outgoings are

Lenders want to know how you spend your money. They may ask for evidence of credit card payments, insurance contracts, household bills and other expenses (groceries, childcare, holidays, etc.).

3. How much your earnings fluctuate

The main difference between employed and self-employed is how earnings fluctuate. If there’s been a dip in your earnings or you’ve been working for yourself for less than two years, you may get a lower mortgage offer than you hoped.

Lenders may still offer you a competitive deal if you can justify fluctuations.

Do self-employed people pay higher mortgage rates?

Self-employed mortgages don’t necessarily mean higher rates. You should qualify for the same deal as someone with a permanent, full-time job if you provide lenders with the relevant paperwork.

Your mortgage rate depends more on the size of your deposit and credit score than on being self-employed.

Can I get a joint mortgage with a self-employed worker?

You can get a joint mortgage with a self-employed person. Your names will appear on the mortgage documentation, and you’ll be responsible for the monthly repayments together. Lenders consider your combined income to assess your mortgage affordability.

Self-employed mortgages for new businesses

Self-employed mortgages for new businesses depend on the lender. Some only need a record of your first year’s earnings, while others may require two or more. A qualified accountant may need to verify your paperwork, including your SA302s and tax overviews.

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