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Self employed Mortgage 2023 – Your ultimate guide to boost your chances

As of January 2023, there are approximately 4.3 million self employed workers. Many of those started in 2020. This guide will explain everything you need to know about applying for a self employed mortgage.

self employed mortgage

Credit Reports (and why they matter!)

First, if you’re new to the world of finance, a credit report is where all of your financial history is kept. Banks will use this information to determine your creditworthiness and will play a significant factor when deciding to lend to you.

If you’ve never checked your credit report, the details at the bottom of the article will tell you how to get a copy of your free credit report!

This article will assume you have good credit, but don’t be put off if you don’t. There may still be options available.

The different types of self-employment in the UK

Sole-trader

Most people will be sole traders. This is where a person gets paid directly from their customers or clients. Money will go straight into their bank account or their business account. Income is declared to HMRC every year, and you will then pay tax on this income.

The banks will use your Net Profit. This is your profit after expenses. As a general rule of thumb, the higher your net profit, the more you can borrow.

Limited-Company

Some people will set up limited companies. Their company will get paid from customers/clients, which will go into a limited company bank account.

The director will then take a salary and pay themselves dividends from the profit within the company. If you are a director with over 25% shareholding, the banks will classify you as self-employed.

self employed mortgage

What types of self-employment income do you use?

For sole traders, the bank will want to see a minimum of 1 year of tax year overviews and tax year calculations. Ideally, it would be best if you had 2 years’ or 3 years’ worth to indicate that your income is stable.

We can use the income declared on your tax year overviews and tax year calculations for limited company directors. This is your salary for the year plus your dividends. If you take a small salary and no dividends and keep a healthy profit within your company, some lenders can consider this to boost your affordability.

How do I prove my income to the banks?

The lenders will ask for the following to check your affordability and verify that you can afford the mortgage. They may ask for some of the documents below, or they may ask for them all!

  •  2 years’ of full company accounts
  •  6 months’ of business bank statements
  •  4 months’ personal bank statements
  •  2 years’ tax year calculations
  •  2 years’ tax year overviews
  •  accountants reference (from a suitably qualified and registered accountant)

How much deposit will I need?

You will need a minimum deposit of 5% of the purchase price or market value. For a self employed mortgage the deposit can vary. Most self-employed people will try to obtain 10-15% to boost their chances, but this is only sometimes the case.

Affordability will also be a significant factor in determining how much you can borrow.

How much can I borrow?

Different lenders have different calculations. We work with over 90 of the UK’s top lenders. However, a good rule of thumb is between 4 to 4.5 times your net profit (Salary plus dividends for those limited company directors).

If your income is above 100,000, you may be able to secure 5x your income in some cases. If you’re stuck wondering how much you could realistically borrow, ask by contacting us here.

Frequently asked questions about self employed mortgages.

I’ve heard that obtaining a self employed mortgage is more challenging. Is that true?

There is a common misconception that it is difficult. Yes, there is usually more paperwork. However, your mortgage professional will handle all the hard stuff. You only need to get the documents listed above.

I put a lot of expenses through and keep my net profit to a minimum. Will that affect how much I can borrow?

In short, yes. The higher your net profit, the more you can borrow. You may pay more tax on the profit, but that’s how it is. If you run a limited company, some lenders will use the net operating profit within your account for affordability. Again, you should seek professional advice to see if it’s possible.

How long does the mortgage process take from start to finish?

It usually takes around six weeks from application to acceptance. This is assuming that you have supplied all necessary documentation. The lender will instruct a valuation to value your property, and during busy periods, this can take up to 3 weeks.

The assessment of your application is usually done within the first two weeks. It also depends on the complexity of your circumstances, how much you’re looking to borrow, and if you have any adverse credit.

How do mortgages work in the UK?

A mortgage is a big loan secured on a property. You pay this loan off over a number of years. Typically, you start with an introductory rate for the first couple of years.

After this initial rate, you can re-mortgage to another lender or fall onto the banks’ standard variable rate (not recommended).

What type of mortgage products are there?

There are three main types of mortgage products;

Fixed Rate

You are able to fix your rate with fixed-rate products. This means your payment will be set and will stay the same for a set number of months. For example, you could take out a 2 year fixed rate product and your payment will stay the same for 24 months.

Variable Rate

There are variable-rate products out there which means your payment can fluctuate. For example, if you took a tracker rate product, your interest rate would fluctuate in line with the Bank of England’s base rate. As a result, your payments could go up or down.

Offset Products

There are offset products where the interest can be offset by any savings you have with the lender. Ideally, you would need a healthy amount of personal savings before seeing this product’s benefits.

Standard Variable Rate

Once your introductory rate expires, you fall into the bank’s standard variable rate. This is usually priced higher than the initial rate. You can sit on the standard variable rate, but it could cost you more money. 

If you are reading this and are stuck on your bank’s standard variable rate, we may get you a better rate without moving banks. Request your free callback to discuss this.

What do I need to do to get started?

You can contact us for a free initial chat to see how we can help you get moving quicker. This will outline how much you can borrow and if you can afford enough to purchase the dream home, you’re looking at. This process will take a maximum of 30 minutes.

How to get a free copy of your credit report!

We recommend that you use CheckMyFile.

This is because they gather data from 4 different credit reference agencies, which will help us pinpoint the most suitable lender for your circumstances. 

They offer a 30-day free trial with the ability to cancel at any time without penalties. If you want to keep your account after this 30-day period, you can do so for £14.99 per month. 

Tap here to get a copy of your credit report.