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There is a general perception amongst many people that getting a mortgage when you’re self-employed is considerably harder than when you’re employed.
Whilst there are undoubtedly fewer options available to self-employed individuals, the good news is that more and more lenders are becoming increasingly flexible in how they assess self-employed income.
Over recent years, we’ve seen more people choosing to become self-employed. There are a number of potential reasons for this, whether that’s individuals wanting greater flexibility in their working lives following the pandemic, or businesses facing increasing employment costs, including National Insurance and pension contributions.
Whatever the reason, being self-employed certainly doesn’t mean you should struggle to get a mortgage. In fact, depending on how your business is structured and how you take your income, you may be able to borrow considerably more than you initially thought.
Why Can Getting a Mortgage Be More Complicated When You’re Self-Employed?
Ultimately, mortgage lenders want confidence that the income being used to support a mortgage application is sustainable.
For someone who is employed, this is generally relatively straightforward. A lender can look at their basic salary, employment contract and payslips to establish their earnings.
For someone who is self-employed, however, income can fluctuate from one year to the next.
A business might have an exceptionally profitable year followed by a quieter period, and lenders need to be comfortable that the income being declared can continue to support the mortgage repayments.
This doesn’t necessarily mean that lenders view self-employed individuals as higher risk, but it does mean they generally require more evidence to establish a consistent trading history.
How Do Mortgage Lenders Assess Different Types of Self-Employment?
One of the most important things to understand is that lenders don’t assess every self-employed individual in the same way.
There are three main categories:
- Sole traders
- Partnerships
- Limited company directors
The way your income is calculated can vary significantly depending on which category you fall into.
Sole Traders and Partnerships
For sole traders, lenders will generally assess income based on the net profit of the business rather than its turnover.
For partnerships, lenders will typically consider the individual’s share of the partnership profits.
Most lenders want to see a two-year trading history, although there are exceptions.
Where profits have increased over the last two years, many lenders will use an average of those two years to calculate affordability.
However, where profits have decreased, lenders will often use the most recent year’s figure instead.
For example, imagine a sole trader has the following profits:
- Year 1: £50,000
- Year 2: £70,000
A lender using the two-year average would assess income at £60,000.
However, if the figures were reversed, with profits falling from £70,000 to £50,000, a lender may only assess income at £50,000.
As you can see, the direction in which your business profits are moving can make a significant difference to how much you can borrow.
Limited Company Directors
This is where things become particularly interesting.
Different lenders have different approaches to assessing limited company directors, and choosing the right lender can make an enormous difference to mortgage affordability.
Traditionally, many lenders assess directors based on their salary plus dividends.
However, an increasing number of lenders are prepared to assess income using salary plus the director’s share of company profits, subject to their individual criteria.
This is particularly beneficial for directors who choose to retain profits within their business rather than withdrawing everything as dividends.
For example, consider a company director who receives:
- Salary: £12,570
- Dividends: £30,000
- Share of company net profits: £80,000
A lender assessing salary plus dividends might recognise income of £42,570.
However, a lender assessing salary plus the relevant share of company profits could potentially recognise £92,570, depending on the lender’s calculation method and whether the profits are sustainable.
That is a substantial difference, and it demonstrates why understanding how individual lenders assess company directors is so important.
How Many Years’ Accounts Do You Need?
One of the biggest misconceptions I regularly come across is that self-employed individuals need three years’ accounts to get a mortgage.
This simply isn’t the case.
Most mainstream lenders will typically want to see two years’ trading history.
However, there are also lenders that will consider applicants with just one year’s accounts.
Naturally, having only one year’s trading history will reduce the number of available lenders, but there are still some very competitive options available.
This can be particularly useful for someone who has recently moved from employment into self-employment, especially where they’re continuing to work within the same industry.
What Documents Will Mortgage Lenders Need?
Self-employed mortgage applications generally require more financial documentation than employed applications.
The three main documents you’ll commonly come across are:
SA302s or Tax Calculations
These essentially provide a breakdown of the income you’ve declared to HMRC during a particular tax year.
They can show income from self-employment, employment, rental properties, dividends and other taxable sources.
Tax Year Overviews
These are HMRC records showing the tax position for a particular year, including tax charged and payments recorded.
Lenders commonly request these alongside tax calculations to help verify the figures being used.
Limited Company Accounts
For company directors, lenders may also request company accounts.
These provide a picture of the financial performance of the business, including turnover, expenses, operating profits and net profits.
They can be particularly important where a lender is assessing affordability based on company profits rather than simply salary and dividends.
Why Timing Your Mortgage Application Can Be So Important
This is something that I believe self-employed individuals should pay particular attention to.
Many lenders require the latest tax calculations to relate to a tax year ending no more than 18 months before the application, although exact requirements vary between lenders.
The UK tax year runs from 6 April to 5 April the following year.
For example, the 2025/26 tax year ended on 5 April 2026.
Under a lender’s 18-month rule, those figures would generally remain within the permitted period until early October 2027.
Once that period has passed, the lender would normally require more recent tax information.
Why is this important?
Because there can be a window between April and early October when, depending on the lender’s criteria and whether more recent returns have already been submitted, there may be some flexibility over which financial years are assessed.
Please note, that any mortgage adviser has to submit the latest two years tax returns to a lender, but most applicants will know if there income is going up or down and can plan appropriately.
This can be particularly useful if your income has fluctuated.
For example, if you’ve had a particularly profitable year, completing your tax return promptly could allow that income to be considered sooner.
Conversely, if your income has reduced, understanding which financial years a lender requires can help you establish your realistic borrowing position before making an application.
It is important to stress that you cannot simply choose whichever year’s income produces the highest mortgage. Lenders have their own rules regarding the latest available accounts, declining profits and income sustainability.
Nevertheless, the timing of your application can make a meaningful difference.
How Much Can You Borrow When You’re Self-Employed?
As with employed applicants, the amount you can borrow will depend on your income, existing financial commitments, deposit and personal circumstances.
As a broad starting point, many lenders offer borrowing in the region of 4.5 to 5 times assessable income, although this is not guaranteed.
Some lenders may consider higher multiples, potentially around six times income, for applicants meeting particular eligibility and affordability requirements.
For example, a self-employed applicant with £60,000 of assessable income might have an indicative borrowing range of:
- 4.5 times income: £270,000
- 5 times income: £300,000
- 6 times income: £360,000
These are illustrations rather than guaranteed borrowing amounts. Actual affordability will depend on the lender’s assessment of income, expenditure and other criteria.
The key point is that two lenders can look at exactly the same self-employed applicant and arrive at very different borrowing figures.
How Should You Prepare for a Self-Employed Mortgage Application?
My biggest piece of advice would be to speak to your mortgage adviser as soon as possible, and discuss the tax returns that are currently in place as a starting point.
Many self-employed individuals leave filing their returns until the January deadline. Whilst this may be perfectly acceptable from a tax perspective, it isn’t necessarily helpful when planning a mortgage application.
If you’re looking to purchase a property during the summer, having your latest tax returns completed can give you access to more up-to-date income figures.
Equally, if you’re approaching the autumn and considering purchasing or remortgaging, it’s worth reviewing your accounts and tax position with your accountant and mortgage adviser.
I’d also recommend speaking to a mortgage adviser before making any significant changes to how you draw income from your business.
For limited company directors in particular, understanding the difference between salary, dividends and retained profits can be extremely valuable.
Final Thoughts
Getting a mortgage when you’re self-employed isn’t necessarily as difficult as many people believe.
Whilst there are additional considerations compared with employed applicants, there are plenty of lenders willing to support self-employed borrowers, including those with relatively short trading histories.
The important thing is understanding how your income is assessed, which lenders are most suitable for your circumstances and when to make your application.
For limited company directors, in particular, the difference between lenders assessing salary and dividends versus company profits can be substantial.
If you’re self-employed and considering buying a property or remortgaging, we’d be happy to discuss your circumstances and explore the options available to you.
Any initial conversations are fee-free, and could help establish how much you may be able to borrow before you start looking for your next property.
