How to arrange a mortgage as a self-employed borrower

Updated on:
27 September, 2021

Whether you’re a company director, a contractor, or a freelancer, the financial rewards of self-employment can be significant. But as those who work for themselves often discover, arranging a self-employed mortgage is far from easy – no matter how successful you are. 

The reason behind this is simple. Salaried workers tend to have a stable and regular income, which makes it far easier for banks to assess the risk of lending. Because self-employed income often varies and may reduce without warning, many lenders either aren’t prepared to offer large loans to these individuals or will be unwilling to offer them the best deals in terms of interest rate.

It’s also more difficult for lenders to understand the structure and cadence of a self-employed individual’s income. Historically, it was possible to self-certify how much you were earning – but this practice was banned after the credit crisis, and prospective borrowers are now placed under far greater scrutiny. 

However, despite the challenges, it’s more than possible to arrange a high-value mortgage as a self-employed applicant – providing you get the right advice. 

Do self-employed borrowers need a specific self-employed mortgage product? 

The first misconception to address is that self-employed mortgage seekers need a specific mortgage product targeted at self-employed borrowers. This isn’t the case – in theory, any mortgage product could be suitable for a self-employed person. 

The difference comes in what you’ll need to show and prove in order to secure finance. Whereas a salaried employee can typically use payslips as clear proof of income, enabling lenders to judge quickly how much that individual can borrow, self-employed applicants face a more complicated process. 

And if you’re seeking a large mortgage, a mortgage at a high loan-to-value (LTV), or interest-only finance, things could get even more complicated. 

Arranging a large self-employed mortgage 

Usually, to secure a mortgage as a self-employed individual, you’ll need to share two years of accounts that demonstrate you have a consistent income. It’s usually best to have this paperwork prepared by an accountant to ensure everything is presented in the right way. 

The reason you’ll need several years of accounts is so that lenders can create an average of your earnings, which then enables them to calculate your affordability. 

What if your case isn’t that straightforward? 

If, as a self-employed person, your financial affairs are very straightforward, you may find it relatively easy to secure a loan. However, for the vast majority of high net worth (HNW) applicants, this isn’t the case. 

For example, you may not have two years of accounts if you have worked for a long period in a high-paying salaried role, and have recently become a contractor. Even if you are now earning more than before, you could struggle to secure a loan. This is particularly distressing if you are looking to remortgage an existing asset. 

Or, you might be a successful entrepreneur who has retained profits within the businesses or started a new venture, meaning your income on paper looks low, regardless of the fact you are a HNW applicant who can confidently take on a large mortgage. 

It could even be that the nature of your self-employment means your income comes from multiple sources or is variable, albeit significant – which can put some lenders off. And if you have other complicating factors in your case – such as being a foreign national who is domiciled in the UK – things can get even more difficult. 

How to overcome the challenges of arranging a self-employed mortgage

If you are a HNW applicant seeking a mortgage while self-employed, you’ll likely be best served by a private or specialist bank, rather than one of the high-street lenders.

Private and specialist lenders have far greater capability to assess complex applications on a case-by-case basis, considering not just your past and current financial affairs but your future trajectory. A private bank, for example, may be far more willing to start a relationship with a newly self-employed entrepreneur if they can see well-calculated projections for future income. 

However, accessing these lenders is less straightforward than simply making an appointment with a bank. Working with a broker can prove invaluable here, as we can advise on the best lender to place your case with, can structure your application in the most favourable light, and can advise on the complicated subtleties – such as how you’ll be assessed by banks, depending on when you’re a sole trader or director of a limited company. 

And, crucially, our relationships with these lenders mean we can negotiate for the best rates – ensuring your self-employed mortgage is arranged on the most favourable terms. Ultimately, the key thing to remember is that there is no complexity that can't be overcome, providing you have the right support in place. 

Looking for a self-employed mortgage and want to prepare yourself for the best chance of a successful application? Download our guide to learn more. 

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