All you need to know about applying for a mortgage when you are self employed

Getting a mortgage as a self-employed person can feel tricky to get your head around.Whether you are a sole trader, a limited company, or a limited liability partnership, yourincome will be treated differently based on how you trade.What’s more, different lenders will assess income in slightly different ways, which can make it even more confusing.There isn’t a one-size-fits-all approach as to how self-employment is perceived by lenders, which is why seeking advice from a mortgage broker from the beginning is crucial.
By Andrew Milnes
Published 18th Apr 2023, 04:00 BST

Lenders will start by looking at key areas when assessing your income and this includes your trading style, net profit, dividends and expenses.

However, lender criteria can differ. Say you are applying for a mortgage as a limited company, where you would normally earn

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through PAYE income and dividends, which is what you would presume to be the primary focus.

Andrew Milnes, business principal at the Mortgage Advice Bureau, BingleyAndrew Milnes, business principal at the Mortgage Advice Bureau, Bingley
Andrew Milnes, business principal at the Mortgage Advice Bureau, Bingley

Some lenders will look at the profit your business made instead, while others will look at profit and then factor in PAYE income.

Pre-pandemic, lenders would typically ask for three years of accounts but some have begun to assess how a business has recovered during this period, looking forwards not backwards. This means they may base your eligibility on accounts from the latest tax

year.

For example, a business that was previously booming may now be a lot quieter and deemed not as viable in the eyes of a lender.

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Based on previous years’ income, you may have been able to borrow the amount required for the mortgage but don’t be surprised if the lender takes a more holistic view of your business, looking at the bigger picture, such as where your work is coming from and how sustainable it is.

They may also factor in whether you took grants from the self-employed income support scheme or bounce back loans and they will check whether your tax affairs are up-to-date.

It is important to note that every lender is different, as are each self-employed individual’s financial circumstances, so an analysis of your eligibility will be based on different factors.

That is where an experienced mortgage adviser is helpful as they will be up-to-speed as to which lenders are most suited to your needs,

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and are well-equipped to navigate the complexities associated with this particular type of mortgage application process.

During your mortgage appointment, your advisor will ask for the information provided to Inland Revenue, such as your SA302 (self-assessment) tax calculation and tax year overview.

These are some of the documents the lender uses to determine your eligibility. Once this has been collated, your adviser will find the best way to approach the application to give you the maximum borrowing capacity.

If you are self-employed and want a mortgage try and not get overwhelmed, you have plenty of options available to you.