What you need to know about self-employed mortgages

What you need to know about self-employed mortgages

Self-employed or a sole trader? Don’t let that put you off getting a mortgage. With more alternative product options available than ever before, banks and building societies are happy to lend to sole traders or self-employed individuals. Associate Director Romit Patel explains how to prepare for a self-employed mortgage application. 

In 2021, the estimated number of self-employed people in the UK was 4.1 million. To many, the advantages that come with self-employment out way the negatives. The attraction of potential tax benefits, being your boss and working your hours has seen more and more individuals taking up the challenge.

However, one of the most common misconceptions is that it is almost impossible for a sole trader or self-employed person to obtain a mortgage. This simply isn’t true! With the right guidance from our advisers, a self-employed person can secure a mortgage and obtain the property they want.

What do I need for a self-employed/sole trader mortgage?

Mortgages for the self-employed are an option for freelancers and contractors working on a gross pay basis, perhaps paying themselves with a small salary and larger dividend payment. Whilst it is more common to apply for a mortgage after you have been working for yourself for more than 2 years, some lenders will consider less time depending upon your circumstance and overall application.

If you are self-employed, lenders may be happy to lend to you if you are working as a sole trader or as a director of a limited company. To support your application, you must be able to demonstrate;

  • Earnings of the business through one- or two- (plus) years of accounts,
  • Earnings that you have drawn with one or two years worth of personal tax returns
  • You must show you are trading at the level showing on your accounts or personal tax returns.

How much can I borrow for a self-employed mortgage?

Without the security of a permanent job and fixed income, it can be more complicated to ascertain your affordability. However, every lender has their criteria that will impact the income multiples they offer.

On average, you can usually borrow up to 4.5 times your annual income but in some instances, there are specialist lenders who will consider lending up to 6 times your income. Try our mortgage calculator for more information.

What will mortgage lenders look for in an application?

When assessing income for a self-employed person, different lenders will consider different suitability metrics including;

  • Salary and dividend showing on your tax return
  • Salary and the net profits showing on your company accounts
  • For legal professionals, your accounts or confirmation of your income are provided by your Chambers.

At LDN Finance we are specialist advisers who have a wealth of experience securing the most suitable mortgages for contractors, freelancers and self-employed workers. Associate Director Romit Patel and the team will work with you to assess your situation before presenting lenders that are most suited to your circumstances. To speak to one of our experts, call 020 3903 9875 or click here to complete the online form.