What counts as self-employed?

You will be classed as self-employed if you own around about 25 percent of a business, or more.

Those who are in a partnership are treated the same as those who are sole traders.

Is it difficult to get a mortgage if you're self-employed?

It is more difficult to get a self-employed mortgage than it may have been before the recession, but this is the case with mortgages generally.

You now need to get your income verified when you apply for a mortgage, because all lenders will want to assess your ability to repay.

Can you still get a self-certification mortgage?

No, the Financial Conduct Authority (FCA) banned self-certification mortgages in 2011. This stopped people applying for mortgages where they did not have to prove their income.

Who can get a self-employed mortgage?

Most lenders are happy to give mortgages to self-employed people if:

  • You have been trading for at least three years

  • You have two years of accounts or self-assessment tax returns available

There may be some discretion around the deposit that's required, or your credit rating. You may also be able to find a lender who would consider your application if you have one year of accounts plus a projection, but these are in the minority.

Some stricter lenders may want to see a prediction of your future clients or contracts, to make sure you can afford your mortgage repayments.

Shop around and compare self-employed mortgage deals to find the right product for you. Speaking to a mortgage broker can also help you find the right deal, and meet the requirements for a successful application before you apply.

How is a self-employed mortgage calculated?

The amount you can borrow and the way it's calculated depends on the lender, which is why it is important to shop around for the best deal.

Some lenders set the amount you can borrow based on your previous few years' income, whereas others calculate it based on only your previous year of trading.

They will also calculate your mortgage offer differently, depending on your legal status:

  • For sole traders and partnerships, lenders take net profits as income.

  • For limited companies, the lenders look at salary and dividends. In some cases, they look at salary and net profit of the company.

The problem lenders face when deciding how much to lend to you often lies in the difficulty of establishing your regular income. For example, you might have quiet months or years, or periods when your business does better. This could distort the amount of money that a lender would offer you.

How to improve your chances of getting accepted

The length of time you have been trading is incredibly important, so time your application accordingly.

Make sure your accounts are up to date, perhaps by using an accountant. You should also know your net profit before tax.

You can do a self-assessment, by filling out a SA302 form in order to prove your income. If you have been trading for a while, it's likely that you will already have completed a self-assessment tax return.

Can you get the same offers as people who are employed?

Yes, there is no reason why being self-employed should limit the mortgage deals available to you. Most lenders do not discriminate on this basis.

Like employed buyers, you can help your chances of getting accepted for a mortgage by having:

  • A healthy deposit

  • A good credit rating

  • The ability to cover your mortgage repayments

Look at all your options, and make sure you have the evidence you need to prove that you are able to repay the loan.