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What Income do Mortgage Companies look at Self-Employed?

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Your income is an important part of how a Mortgage Provider will assess you for a loan. Annual earnings are the basis of how much they will lend you to buy a home. The way your business is set up can affect the way they look at your income.

What counts as Self-Employed?

Lenders have a consistent view of Self-Employment. It means you own more than 20% of a business and it is your main source of income. You might run the business as a sole trader, company director, partner or contractor.

Why is proving your income so important?

Every Mortgage Lender has to assess borrowers’ affordability, to make sure that they can comfortably meet their monthly repayments. 

For the Self-Employed, income is often more variable than for standard employed mortgage applicants. So lenders will want to see evidence of how much you have earned over a couple of years to calculate an annual income. They will also check your credit rating and look at past bank statements.

Generally, lenders will offer you around four to five times your annual income in a mortgage.

Proving your income as a Sole Trader

Sole Traders will need to provide two years HMRC Tax Calculations and Overviews, previously called the SA302 form. You can access this information from the government website.

Proving your income as a Company Director

If you pay yourself a low base salary for tax reasons, you might need to find a lender that is small business-friendly. These will accept net profit in the business as well as salary and dividend payments as the income for your loan – which should mean you can borrow more.

Proving your income as a Contractor 

Some lenders will treat you simply as a sole trader or limited company, but others will specifically accept your contracting income. They may accept your day rate as the basis for the loan, as long as you can prove that your contract is at least six months long and you have been in continuous employment for the past two years.

Do Self-Certified Mortgages still exist? 

Self-certification mortgages were once the main option for Self-Employed people wanting to buy a home. With these products you didn’t need to prove your income, you simply stated your annual earnings. 

These mortgages disappeared after the credit crunch, when new rules meant that Mortgage Lenders had to confirm that every customer had the means to repay their debt.

How do you go about getting a Self-Employed mortgage?

Getting the mortgage is the same process whether you are employed or Self-Employed. Start by talking to a Mortgage Broker like us about your property plans, and we will check credit scoring, deposit and income to set your budget. 

Next we will get you an Agreement in Principle from a suitable lender, which sets you up to make an offer on a property.

Once your offer is accepted, we’ll support you with the mortgage application process and support you all the way through until your purchase is complete. 

How do I improve my chances of my mortgage application being approved?

The most important step in getting mortgage approval is making sure you’re applying for a mortgage that suits your circumstances. As mortgage professionals it’s our role to do all the research and find a competitive deal where you meet all the lender’s criteria. 

Generally, you will have the best chance of finding a suitable product if you have:

  • at least two years’ business records to hand
  • a good credit score
  • At least 10% deposit – but 20% or more will unlock the best rates

Contact us for an initial chat about your property plans – we’d love to help. We are authorised and regulated by the Financial Conduct Authority and have helped hundreds of Self-Employed clients find suitable mortgage deals.