Self-employed
The products are the same ones everybody else applies for, at the same rates. What differs is the evidence you provide and — far more consequentially — how each lender chooses to read it.
Two lenders can look at one set of accounts and reach maximum loans that differ by a six-figure sum. Nothing about the business changed. The definition of income did.
Four situations
Generally, holding a meaningful share of a business you work in. The four structures below are assessed in genuinely different ways, and being clear which one you are is the first step.
Company directors
A director who takes a modest salary and modest dividends, leaving the rest of the profit in the company, is doing something entirely sensible for tax. To a lender that assesses on salary plus dividends, it also makes them look like a low earner — because the only figures it counts are the ones drawn out.
A meaningful group of lenders takes a different view, assessing on salary plus your share of the company's net profit, whether or not it was distributed. For a business that retains profit deliberately, that single choice of method is usually worth more to the borrowing figure than any rate negotiation could be.
Neither approach is wrong, and both are common. What matters is that the case goes to a lender whose method suits how the business is actually run — because on identical accounts the two produce maximum loans that are not close to each other.
The practical implication runs backwards into the tax year. How you and your accountant structure remuneration in the two years before you apply directly shapes what you can borrow, so a mortgage that is coming in eighteen months is worth mentioning to your accountant now rather than later.
Where profit is used, lenders will usually want an accountant's confirmation of your shareholding and of the profit figure.
A single loss-making year in an otherwise strong run is not automatically fatal — but it needs explaining in the application rather than being discovered in underwriting.
Evidence
Order these before you apply. The tax documents in particular can take days to obtain, and an application that stalls waiting for them is an application that ages badly.
Trading history
Most lenders want two full years of accounts, and a good number will consider one. Below a full year the market is very thin, and the exceptions tend to be contractors on a day-rate assessment or people who have moved from employment into self-employment doing precisely the same work for the same client.
Where more than one year is available, lenders differ again in what they do with it. Some take the most recent year. Some average the last two. Some average but cap at the most recent year if it has fallen. A business with rising profits is best served by a lender that uses the latest year; one with a dip is better served by an averaging lender.
A declining trend attracts questions everywhere, and the answer matters. A deliberate investment year, a one-off cost, or a client lost and replaced are all explicable — but they have to be explained in the application, with the accountant's support, rather than left for an underwriter to interpret unaided.
Changing structure — sole trader to limited company — does not necessarily reset your trading history if the work and the client base carried over.
Time to first application is one of the few things worth planning around: applying a month after a year end, with fresh accounts, is a different case from applying a month before it.
Questions
Two is the common requirement and one is workable with a reasonable number of lenders. Under a year is difficult but not always impossible — contractors assessed on a day rate, and people who have moved from employment to self-employment doing the same work for the same client, are the two situations where lenders are most likely to look at it.
With some lenders, yes — they assess salary plus your share of retained net profit. With others, only what you actually drew as salary and dividends counts. The difference between the two methods is frequently the difference between the mortgage you want and one that falls well short, so identifying which lenders use which approach is the single most valuable thing to get right in a director's case.
For a sole trader or partner, yes, directly — income is net profit, and expenses reduce it. That is not an argument for claiming less than you are entitled to, but it is a reason to be aware of the trade-off in the years before an application. For a director assessed on retained profit, legitimate company expenses reduce profit in the same way.
No. The products and rates are the same as for anyone else at the same loan to value. What differs is the evidence required and the range of lenders whose criteria you fit. Where self-employed borrowers do end up paying more, it is almost always because the case went to a specialist lender when a mainstream one would have taken it.
It needs addressing rather than hoping it goes unnoticed. Lenders that average the last two years may still produce a workable figure, and a documented explanation — a one-off cost, a deliberate investment, a client replaced — carries real weight when it comes from your accountant. What does not work is submitting it without comment and waiting for the question.
For mortgage purposes, possibly not. A number of lenders operate a contractor policy that assesses your day rate annualised across a working year, treating you closer to an employee than to a business owner. Whether that applies depends on the contract, the length of your contracting history and the lender — but where it does apply it is usually far more generous than an assessment based on accounts.
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Your home may be repossessed if you do not keep up repayments on your mortgage. Figures shown on this site are illustrative estimates and do not constitute advice or an offer of credit.
Next step
Give us two years of figures and your structure, and we will tell you which definition of income gets you the largest sensible loan — and which lenders use it.
