Self Employed Mortgages

Helping sole traders, company directors, contractors and CIS workers find mortgage lenders who understand how they earn.

Being self-employed should not prevent you from buying a home or arranging a competitive mortgage. The challenge is often knowing which lenders will assess your income in the most favourable and appropriate way.

At Ian Wilson The Mortgage Store, we take the time to understand your business, your income and your future plans before searching across a wide range of mortga

Self-employed income can be presented in several different ways. Some lenders consider net profit, while others use salary and dividends or may take account of your share of company profit.

Choosing the right lender can therefore make a considerable difference to how much you may be able to borrow.

Income Assessed the Right Way

Your income might come from business profits, salary, dividends, contracts or CIS payments. We examine the full picture and identify lenders whose assessment methods are appropriate for the way you earn.

Salary, Dividends and Company Profit

Many limited company directors take a modest salary and leave some profit within the business. We can explore lenders that consider salary and dividends as well as those that may consider your share of company profit.

Sole Trader and Partnership Expertise

Sole traders and business partners are commonly assessed using their declared share of net profit. We will help you understand the figures a lender is likely to use and the evidence you may need to provide.

Contractor and CIS Mortgage Options

Contractors and Construction Industry Scheme workers may be assessed differently by different lenders. Some lenders may use accounts or tax returns, while others may consider contract income or gross CIS earnings.

Planning With Your Accountant

Tax planning and mortgage planning do not always produce the same outcome. By discussing your future property plans early, we can work alongside you and your accountant so that informed decisions can be made before your accounts are finalised.

Access to a Wide Range of Lenders

Your own bank only offers its own mortgage products and applies one set of lending rules. We can search a much wider range of high street and specialist lenders to find criteria that better match your circumstances.

Mortgage lenders commonly assess sole traders using net profit, while limited company directors may be assessed using salary and dividends or a share of business profit. Requirements vary considerably, and some lenders are more flexible than others.

You have worked hard to build your business. Your mortgage application deserves to be assessed by a lender who understands it.

Speak to Ian Wilson for clear, experienced advice based on your individual circumstances.

Yes. Being self-employed does not automatically prevent you from obtaining a mortgage, and it does not necessarily mean that you will have to pay a higher interest rate.

You will generally have access to the same types of residential mortgage as an employed applicant. The main difference is the way in which your income is evidenced and assessed.

An employed applicant might provide payslips and a P60. A self-employed applicant may instead need to provide business accounts, tax calculations, tax year overviews, bank statements or evidence of ongoing contracts.

The difficulty is that lenders do not all interpret those documents in the same way. A lender that appears unsuitable based on one income calculation may be perfectly suitable when a different assessment method is used.

That is why choosing the lender before submitting an application is so important.

The income figure used for your mortgage application will depend on how your business is structured.

Mortgages for Sole Traders

If you are a sole trader, lenders will usually consider the net profit shown in your accounts or tax calculations.

Many will average your income over the most recent two years. If profits have fallen, a lender may use the latest and lower figure rather than the average. Some lenders may consider an application with only one complete year of trading, although the available choice may be smaller.

Mortgages for Limited Company Directors

Company directors often receive income through a combination of salary and dividends.

Some lenders will add those two figures together. Others may consider your salary plus your share of the company’s net profit. This second approach can sometimes be helpful where profits have been retained within the business rather than withdrawn as dividends.

The percentage of the company you own can also affect whether a lender treats you as employed or self-employed.

Mortgages for Business Partners

If you are a partner in a business, lenders will normally consider your individual share of the partnership’s profit.

They may request partnership accounts as well as your personal tax calculations and tax year overviews.

Mortgages for Contractors

Some contractors are assessed using their declared self-employed income. Others may be assessed using the value of their current contract or an annualised calculation based on their daily rate.

Your experience, length of time contracting, remaining contract term and history of contract renewals may all be considered.

Mortgages for CIS Workers

Construction Industry Scheme workers can present an unusual situation because they may be treated as self-employed for tax purposes but assessed more like employed applicants by certain mortgage lenders.

Some lenders may use the gross income shown on CIS statements rather than the lower profit figure shown after business expenses. This can potentially produce a higher affordability figure, although it will depend on the lender’s current criteria and your wider circumstances.

HMRC describes CIS subcontractor income as the full amount before contractor deductions for tax-reporting purposes. Mortgage lenders then apply their own individual affordability and evidence requirements.

The precise requirements will depend on your business structure and the lender selected. You may be asked to provide:

• Your most recent business accounts.
• SA302 tax calculations or tax computation documents.
• HMRC tax year overviews.
• Personal bank statements.
• Business bank statements.
• Proof of your deposit.
• Identification and address documents.
• Current and previous contracts.
• CIS payment and deduction statements.
• An accountant’s reference or projection.
• Evidence explaining any recent changes in income.

Many mainstream lenders ask for around two years of income evidence, although some lenders will consider one year in suitable circumstances.

Having the documents prepared before you find a property can help prevent unnecessary delays later.

Running a business often involves making legitimate, tax-efficient decisions about expenses, salary, dividends and retained profit.

However, reducing your taxable income can also reduce the income figure used by some mortgage lenders.

This does not mean that you should make unnecessary tax payments simply to obtain a mortgage. It means that your accountant and mortgage adviser should understand your future plans before important financial decisions are made.

Ideally, speak to us before your accountant finalises the relevant financial year. We can explain how different lenders may interpret the figures, allowing you and your accountant to make informed decisions.

Planning may be particularly important when:

• You hope to buy a home within the next year or two.
• You are considering changing from sole trader to limited company status.
• Your business profits have recently increased.
• You retain substantial profit within your company.
• You are changing how you take salary and dividends.
• You have recently become self-employed.
• You are about to submit your annual accounts or tax return.

We cannot provide tax advice, but we can explain the potential mortgage implications of the figures a lender is likely to assess.

It may be possible.

Many lenders prefer applicants to have at least two complete years of accounts or tax records, but a smaller number may consider someone with one full year of self-employment.

They are likely to examine your previous employment, experience within the same industry, current business performance, deposit, credit history and evidence that the income is sustainable.

For example, someone who has left an employed role to establish a business in the same profession may be viewed differently from someone entering a completely new industry.

Rather than applying to several lenders and hoping for the best, speak to us first. We can examine your circumstances and identify whether there are lenders whose criteria may accommodate your trading history.

There is no single borrowing multiple that applies to every self-employed applicant.

The amount available will depend on factors including:

• The income figure accepted by the lender.
• Your regular financial commitments.
• Loans, credit cards and other debts.
• The number of financial dependants you have.
• Your deposit.
• Your credit history.
• The proposed mortgage term.
• The lender’s affordability assessment.
• Whether your income is stable, increasing or decreasing.

Two lenders could examine the same accounts and reach different conclusions because they use different income calculations and affordability models.

A carefully selected lender may therefore be able to offer a very different result from your existing bank.

Buying your first home can feel particularly complicated when you are also running a business.

We will help you understand how much you may be able to borrow, the deposit you are likely to need and the documents that should be prepared before you begin viewing properties.

You may also benefit from obtaining an agreement in principle so that estate agents and sellers can see that you have already started the mortgage process.

Your employment situation may have changed since your current mortgage began. You might have started a business, become a company director or moved from permanent employment into contracting.

That does not necessarily mean you must remain with your existing lender.

We can review your current mortgage alongside your latest accounts and explore whether a new lender could offer a more suitable deal.

Self-employment combined with previous credit difficulties can make lender selection even more important.

Missed payments, defaults, county court judgments or other problems do not always mean that a mortgage is impossible. The age, value and circumstances surrounding the credit issue will all need to be considered.

We can examine both your income evidence and your credit history before approaching a suitable lender.

The difficulty is rarely that lenders refuse to help self-employed people. It is that each lender uses different rules.

One lender may assess your salary and dividends. Another may consider company profit. A third may be more suitable for contractors, CIS workers or applicants with only one year of accounts.

At Ian Wilson The Mortgage Store, we will:

• Learn how your business and income are structured.
• Explain the documents you are likely to need.
• Review your plans before an application is submitted.
• Search a wide range of high street and specialist lenders.
• Recommend a mortgage based on your circumstances.
• Help prepare and manage your application.
• Keep you updated as the application progresses.

Instead of leaving your future to chance, you can approach the mortgage market with greater confidence and clarity.

Whether you are a sole trader, company director, partner, contractor or CIS worker, the first step is understanding how mortgage lenders are likely to assess your income.

Speak to Ian Wilson The Mortgage Store before you submit an application or finalise important business figures.

We will examine your circumstances, explain your options clearly and help you approach an appropriate lender.

Your home may be repossessed if you do not keep up repayments on your mortgage.

Do Self-Employed People Pay Higher Mortgage Rates?

Not automatically. Self-employed applicants can obtain the same mortgage products as employed applicants, provided they meet the lender’s income, affordability, deposit and credit requirements.

A higher rate is more likely to result from the overall risk profile of the application than from self-employment alone.

How Many Years of Accounts Do I Need?

Many lenders request two years of accounts or tax records. Some may ask for three years, while others may consider one year where the application is otherwise strong.

The right lender will depend on your business history and wider circumstances.

Can a Lender Use Retained Company Profit?

Some lenders may consider a company director’s salary together with their share of company profit, rather than relying only on dividends that have been withdrawn.

This can be beneficial for directors who retain profit within a healthy business, but the lender may require additional accounts and business information.

Can I Get a Mortgage if My Latest Profit Is Lower?

It may still be possible, but lenders are likely to ask why the profit has fallen and whether the reduction is expected to continue.

A lender might use the latest lower figure rather than averaging it with previous years. Up-to-date business information and an accountant’s explanation may be helpful.

Can CIS Workers Get a Mortgage?

Yes. Some lenders assess CIS workers using accounts and tax calculations, while others may use gross income shown on CIS statements.

Choosing a lender familiar with CIS income can make a considerable difference to the affordability assessment.

Should I Speak to a Mortgage Adviser Before My Accountant?

It is sensible to speak to both advisers before your accounts are finalised if you expect to apply for a mortgage soon.

Your accountant can provide tax advice, while your mortgage adviser can explain how lenders may assess your income. This allows decisions to be made with both considerations in mind.