Securing a mortgage when you’re self-employed, a contractor, or a freelancer can feel like navigating a maze with additional hurdles. While traditional employees can simply present their payslips, your income structure requires more documentation and planning. Here’s a guide to help you navigate the mortgage market.
Understanding the Lender’s Perspective
Lenders want assurance that you can consistently make your mortgage payments. Without a regular salary, they’ll scrutinise your income stability and business sustainability more closely.
Preparing Your Documentation
Self-Employed (Business Owners)
- Accounts: At least two years of business accounts, ideally prepared by a chartered accountant
- Tax returns: SA302 forms and tax year overviews for the past 2-3 years
- Bank statements: Business and personal statements showing income patterns
- Proof of upcoming contracts: Evidence of future income
Contractors
- Current contract: Shows your day/hourly rate and contract duration
- Contract history: Previous contracts demonstrating consistent work
- Bank statements: Showing regular income from contracts
- CV: Demonstrating your experience and employability in your sector
Freelancers
- Tax returns: SA302 forms for at least two years
- Client history: Demonstrating diverse income sources
- Invoices: Recent client invoices showing ongoing work
- Bank statements: Showing regular income deposits
How Lenders Calculate Your Income
Different lenders have varying approaches:
- Self-employed: Most lenders use your share of net profits (typically average of last 2-3 years)
- Limited company directors: Salary plus dividends, or share of company profits
- Contractors: Daily rate × days worked per week × 46-48 weeks (accounting for holidays)
- Freelancers: Average of last 2-3 years’ income from tax returns
Specialist Mortgage Options
Consider working with:
- Specialist brokers with experience in self-employed mortgages
- Lenders with tailored products for contractors and self-employed professionals
Improving Your Chances
- Clean up your credit score at least 12 months before applying
- Build a larger deposit (15-20% minimum is ideal)
- Keep business and personal finances separate
- Maintain consistent income in the years leading up to application
- Reduce debt-to-income ratio by paying down other debts
- Register on the electoral roll to improve your credit profile
Timing Your Application
For self-employed individuals, timing matters:
- Apply after filing your latest tax return if it shows income growth
- Consider delaying if you’ve recently changed business structure
- Apply mid-contract rather than between contracts if you’re a contractor
Common Challenges and Solutions
Limited Trading History
- Some specialist lenders will consider one year of accounts
- Consider joint applications with a partner who has regular employment
- Build a larger deposit to offset the risk
Fluctuating Income
- Maintain detailed records explaining any dips
- Focus on demonstrating an upward trend
- Consider using an accountant’s projection letter
Recently Self-Employed
- Consider “contractor mortgages” if you’ve moved from employment to contracting in the same industry
- Look for lenders who consider your employed history alongside self-employed income
Getting a mortgage as a self-employed professional requires more preparation, but is entirely achievable with the right approach. Start planning early, keep meticulous records, and consider working with a mortgage broker who specialises in self-employed applications.
Remember that each lender has different criteria for self-employed applicants, so don’t be discouraged if your first application is unsuccessful. The right mortgage for your situation is out there.
At 3mc, we have a team of expert advisers who can discuss all your mortgage requirements. If you would like to discuss your options, give the 3mc team a call on 0161 962 7800.
All calls are recorded for training and monitoring purposes. 3mc for intermediaries only.
*Your home may be repossessed if you do not keep up repayments on your mortgage. 3mc (UK) Ltd is authorised and regulated by the Financial Conduct Authority and is entered on the Financial Services Register https://register.fca.org.uk/s/ under reference 302992. Please note: The FCA do not regulate Business Buy to Let Mortgages.
