Self Employed Mortgage

A Self-Employed Mortgage refers to the process of obtaining a mortgage for individuals who are self-employed. While there is no specific mortgage product exclusively for self-employed individuals, most standard mortgage products are available to them. However, the application process for self-employed applicants may involve additional lender criteria and can be more challenging when it comes to proving income compared to employed applicants.

Assessment of Self-Employed Mortgage Applications

When you apply for a self-employed mortgage, your application is primarily assessed based on affordability. In addition, you need to have a good credit history and provide evidence of your earnings. Most lenders typically require at least two years of certified accounts (prepared by an accountant if you handle your own taxes) and, in some cases, a tax return (SA302). Some lenders may have a minimum trading period requirement of around two years for self-employed applicants, although it may be possible to obtain a mortgage with just one year of accounts.

Requirements Based on Business Type

The type of business you operate will determine the amount and type of evidence you need to provide:

1. Sole Trader: Lenders calculate the loan amount based on the average of your declared total net income over a period of two to three years. You will need to provide copies of your SA302 forms for those years. Some lenders consider the average income, while others may use the most recent year if your income has been increasing year on year.
2. Partnership: As a partner, your share of the net business profits is used to calculate the loan amount. If you own at least a 25% share, your application will be considered based on your share of profits from the last two or three years.

Limited Company: For limited company directors or shareholders with over 25% ownership, lenders usually consider salary and dividend payments as per the last two or three years’ tax returns. Some lenders may also take into account the applicant’s share of retained net profit in the business, although this is more common with specialist lenders.