Mortgages/Self-Employed

Self-employed isn't a problem. The wrong lender is.

Lenders disagree fundamentally about how to read self-employed income. The gap between the most and least generous is often tens of thousands of pounds.

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

There is no such thing as a self-employed mortgage — there are ordinary mortgages, assessed by lenders who calculate self-employed income in strikingly different ways. One takes salary plus dividends; another takes net profit; another will use a day rate. Same person, same accounts, very different maximum loan. Going to a single lender and accepting their answer is how good cases get declined.

How different lenders read your income

Sole trader — usually net profit, averaged over two or three years
Company director — salary plus dividends, or salary plus your share of retained profit, which can be far more generous
Contractor — often the day rate annualised, ignoring the accounts entirely
Recently self-employed — a handful of lenders will work with one year's figures

What to have ready

Two to three years of finalised accounts, or SA302s with tax year overviews
Business bank statements, usually three to six months
Personal bank statements
Your accountant's details
For contractors, a copy of the current contract

The retained-profit point

If you're a director who leaves profit in the company for sound tax reasons, lenders using salary-plus-dividends will judge you on income you deliberately didn't take. Lenders that consider your share of retained profit can transform what's achievable. Knowing which ones do is most of the value here.

Frequently asked questions

How long do I need to have been trading?

Two years suits most lenders, three opens up the rest. Some will consider one year's accounts where the history and sector support it, particularly if you were employed doing the same work beforehand.

Will minimising my tax bill hurt my application?

It can, with lenders that assess on drawn income — which is the tension every self-employed applicant faces. It's worth understanding the effect a year or two before you plan to borrow, when you still have room to act on it.

Related cover

Worked example

The same accounts, two lender approaches

A company director drawing a modest salary plus dividends, with profit retained in the business, at Stockport prices.

Salary drawn: £12,570
Dividends drawn: £30,000
Assessed income, salary-plus-dividends lender: £42,570
Retained profit, 100% shareholding: £45,000
Assessed income, retained-profit lender: £57,570
Difference in assessed income: £15,000

Identical accounts, identical person, £15,000 difference in the income a lender will work from. At Stockport's £314,000 average that is often the gap between borrowing enough and not.

Illustrative, using researched local price data. Not a quotation, an offer, or a statement of what any lender would agree — your own figures decide that.

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