How will you be assessed for a mortgage as a self-employed person?
The days of the self-certification mortgage, which allowed borrowers to declare their income without proof, have long since passed. Nowadays, when applying for a mortgage as a self-employed individual, you will need to present more evidence that your income is reliable compared to other applicants. 
Even though it takes extra effort, keep this from demotivating you – with some thorough preparation and expert knowledge of what lenders are looking for in terms of financial documentation, you can still get a self-employment mortgage. Despite being self-employed, securing a mortgage is still possible. Don’t just assume that you won’t be approved due to your employment status—options are still available for people that fall into the following;
- Limited company: If you own a registered limited company, you pay yourself a salary and dividends. When applying for a mortgage, your lender will want to know how much your earnings amount.
- Business Partner: If you have one or more business partners, mortgage lenders will ask to see proof of your share of the profits.
- Sole trader: You’ll likely be a sole trader if you’re a contractor or freelancer. In this scenario, you’ll be asked to fill out a tax self-assessment, which will then need to be undersigned by an accountant. In addition, you must provide your mortgage lender with an SA032 form to certify your income.
What if you’ve only been trading for one year
The most common issue for a self-employed person applying for a mortgage is only having one year of accounts. Most lenders want two or three years. There are a few lenders who will consider one year of accounts if you meet the following criteria:
- Have a track record in the trade, or are
- Able to demonstrate guaranteed income within the next accounting period; or
- The business is an ongoing concern and is sustainable, or you are
- Able to provide management accounts for at least the first six months of the current
- financial year – If appropriate, VAT returns for the two previous quarters are to be supplied
- Can provide personal and business bank statements for at least the previous three months
- Income will be based on the profit or salary/dividends for the first year of trading
Can the lender use the latest year’s figures only?
Some mortgagors with at least two years of accounting would prefer the lender to use only the most recent year’s figures rather than taking an average of the previous two years.
Businesses often show an improvement in profits for the second year, and it’s in the mortgagor’s interest to use this figure for mortgage affordability purposes. Some lenders can consider this option, but with conditions, e.g., the total income is stable or increasing.
Lenders often restrict the loan to value, capping this at 80%. 
Lenders will accept an application if you have been trading for less than two years and can provide one year’s verified accounts or SA302 – these may need to be supported by a projection for the current year from a suitably qualified accountant, or the latest three months’ business bank statements.
Under certain circumstances like those previously mentioned, lenders can ask for an accountant’s reference – this confirms levels of profits. Sometimes the lender wants to know why profits have fluctuated over the previous few years.
An accountant’s reference shouldn’t be confused with an accountant’s certificate – this document proves that a professional accountant handles the accounts and that they are in order.
Ways to improve your chances of success
You can take several steps to increase your chances of being accepted for a mortgage when self-employed. For instance, you can:
- Save as much as you can for a deposit
- Check your credit rating
- Correct any mistakes on your credit report
- Get on the electoral roll
- Avoid buying specific properties, such as flats above commercial premises or old or
- unusual buildings, as lenders are less willing to lend on these
- Speak to a mortgage broker
- Look for a mortgage with a specialist lender
Self-employed applications are best managed by one of Connect’s specialist brokers – we have access to lenders who can offer bespoke self-employed products tailored to your needs.
