How much can I borrow if I’m self-employed?

Posted 13 November 2015 by Keith Osborne

Though the old 'self-certification' mortgages are a thing of the past, it's still quite straighforward for the self-employed to get a good mortgage...

Over recent years, the number of self-employed workers has risen sharply. Official figures from the Office for National Statistics show there are now 4.6m self-employed workers in the UK and it is the fastest-growing group of earners.

However, despite the fact that 15% of the UK workforce are now self employed - the highest proportion since records began - it has rarely been harder for a business owner to get a mortgage. The financial crisis and the Mortgage Market Review have changed the way that mortgages are underwritten and self-employed workers have been hit hard.

However, it is possible to get a mortgage if you're self-employed.

Lots of lenders will consider self-employed applicants

While the days of the 'self-certification' mortgage may be long gone, there are still plenty of lenders who will consider applications from self employed workers.

A lender will typically treat you as self-employed if you own more than 20% or 25% of a business. The rules will differ if you're a sole trader, in a partnership or you are the director of a limited company.

Getting a mortgage is a similar process to an employed applicant. You will have to evidence your income and demonstrate that it is affordable to you by completing an affordability questionnaire. While criteria vary from lender to lender you can typically borrow the same as an employed applicant - it is just the underwriting process that is likely to be different.

Remember that there is no such thing as a 'self-employed mortgage’. If you can prove you earn £30,000, you'll be eligible for the same home loan as an employed person on a salary of £30,000 - assuming all other factors are the same.

How to prove your self-employed income

As a self-employed applicant you will have to prove the income that you declare. This is typically done using:

  • two/three years’ accounts prepared by a qualified accountant
  • two/three years’ SA302 forms
  • a certificate/reference from a qualified accountant

Most lenders will want to see two or three years' proof of income although some may accept as little as one year depending on your circumstances.

Lenders will assess your application based on the profits of your business, not your turnover or income. Depending on the lender they may use your most recent profit figures or an average of the last two or three years. Most lenders will take dividends into account and some will even consider retained profit. Any recent dips in income will have to be explained.

One of the main problems facing self-employed applicants is that their accounts often show a low level of profit. Many self-employed minimise their earnings in their accounts in order to pay less tax - however if you reduce your income you'll also reduce the figure a lender will use to determine what you can borrow.

As well as proving your income you will generally also have to provide six months' business and personal bank statements to demonstrate that the mortgage is affordable to you.

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