I am self-employed, how much hassle is it to get a mortgage?

In the UK, getting a mortgage as a self-employed can be a little more difficult than if you were employed. It can be harder to prove you have a stable income without an employer to vouch for you.  However, with careful planning, preparation and the application shouldn’t be too daunting.

[Main photo – Photo by Tierra Mallorca]

Here’s a breakdown of how mortgages for self-employed individuals work in the UK:

Income Documentation: Just like in other countries, self-employed individuals in the UK need to provide evidence of their income. This typically involves providing the last two to three years of tax returns (SA302 forms) from HM Revenue & Customs (HMRC). 

Affordability Assessment: Lenders in the UK are required to conduct affordability assessments to ensure that borrowers can comfortably afford their mortgage payments. This involves analyzing your income and expenses to determine how much you can borrow.

Minimum Income: Lenders often have a minimum income requirement for self-employed applicants. This is to ensure that you have a stable enough income to cover the mortgage payments.

Tax Efficiency: While self-employed individuals often try to minimize their tax liability, it’s important to strike a balance. Some lenders may consider your taxable income for mortgage purposes, so reducing your taxable income significantly might affect the amount you can borrow.

Trading History: Many lenders prefer self-employed applicants to have a certain trading history, typically at least two to three years. This helps demonstrate the stability of your income.

Deposit: The down payment (deposit) required for a mortgage in the UK is generally around 5% to 20% of the property’s value, although higher deposits can lead to better interest rates.

Credit History: Your credit history plays a significant role in mortgage approval. Check your credit report for any errors and work on improving your credit score if needed.

Mortgage Options: Self-employed individuals have access to various mortgage options in the UK, including fixed-rate mortgages, tracker mortgages, and offset mortgages. Research and discuss these options with lenders to find the most suitable one for you.

Mortgage Broker: Working with a mortgage broker can be particularly helpful for self-employed individuals in the UK. Brokers have access to a wide range of lenders and can match you with those that specialize in self-employed mortgages.

Proof of Identity and Address: As part of the application process, you’ll need to provide proof of identity and address, similar to any mortgage applicant.

Specialist Lenders: Some lenders specialize in mortgages for self-employed individuals or have specific products designed for them. These lenders may have more flexible criteria for income verification.

It’s important to keep in mind that mortgage regulations and lending criteria can change, so it’s a good idea to consult with a mortgage advisor or broker who is up to date with the latest requirements. They can guide you through the application process, help you gather the necessary documents, and increase your chances of getting approved for a mortgage as a self-employed individual in the UK.

I have a great working relationship with Dean Laidlaw, a very knowledgeable independent mortgage advisor who offers a personal, proactive, and professional service. If you are self-employed and looking for a mortgage or remortgage or worried about what is involved he would love to hear from you –  dean@avantgardefa.co.uk

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