Being self employed, a contractor, or a limited company director shouldn’t make getting a mortgage harder than it needs to be. The problem is that many mainstream lenders still apply rigid employed income criteria to situations that don’t fit those rules. We know which lenders take a more sensible, individual approach.
Self employed borrowers represent a significant and growing proportion of the UK workforce. According to the Office for National Statistics labour market data, around four million people in the UK are self employed. Despite this, many high street lenders still use assessment models built around PAYE employment, which can significantly undervalue a self employed borrower’s actual income. Working with a broker who understands the self employed lending market means your income is presented in the way that gives you the best chance of getting the right deal.
Sole traders and those in a business partnership are typically assessed on their net profit, averaged over the last two to three tax years. Lenders use your SA302 forms and tax year overviews from HMRC as the primary evidence. You can access these directly through the HMRC self assessment service. If your most recent year shows a significant uplift in income, some lenders will weight the most recent year more heavily.
Limited company directors are where lender criteria diverge most significantly. The two main approaches are salary plus dividends, or salary plus net profit. The first approach is simpler but often produces a lower borrowable figure if profits are retained in the business. The second approach, where lenders add back retained profit, can significantly increase how much you can borrow, but fewer lenders offer it. We work with lenders who take both approaches and will match you with the right one based on how your income is structured.
Many specialist lenders will assess contractors on their daily or annualised contract rate rather than their declared income, which is often far lower due to tax efficiency strategies. For contractors billing through a limited company, this can make a significant difference to the maximum loan available. You’ll usually need to show your current contract, your rate, and evidence of continuous contracting history, typically two years.
Variable or irregular income isn’t automatically a barrier. Lenders who specialise in self employed cases look at average income over the assessed period and overall income trend, rather than just the most recent month. Demonstrating a consistent or growing level of income over two to three years is the most important factor.
Having these documents ready before we speak can speed things up considerably. If you’re unsure which documents apply to your situation, our advisers can run through the specifics with you before you dig anything out.
Most mainstream lenders require two to three years of accounts, but there are specialist lenders who will consider applications with just one year, particularly where the applicant has relevant employed experience in the same industry prior to becoming self employed.
A graphic designer who was previously employed by an agency for five years goes freelance and has one year of accounts showing a net profit of £42,000. A specialist lender is able to consider this application, factoring in the continuity of income within the same profession. The borrower provides SA302 evidence and three months of bank statements alongside the accounts.
Most lenders ask for two to three years. Some specialist lenders will consider one year where there’s relevant prior employed experience in the same industry.
Some lenders will place more weight on the most recent year if it shows a significant uplift, particularly where there’s a clear business reason for the increase. This varies by lender.
Most lenders require accounts prepared by a qualified accountant, typically an ACCA or ACA qualified professional, rather than accounts you’ve prepared yourself.
Under salary plus dividends assessment, yes. But several specialist lenders assess on salary plus net profit, which can significantly increase your borrowable amount. We’ll identify which approach works best for your income structure.
Yes, with the right lender. Many specialist lenders annualise a contractor’s daily rate to produce an effective income figure, which is often much higher than declared net profit.
