Self-Employed and Getting a Mortgage? Here’s Where to Start…

Securing a mortgage as a self-employed person can feel like solving a complex puzzle, just with a few more hoops to jump through. But don’t run away just yet! With some prep and savvy guidance, self-employed applicants can navigate this process smoothly and actually enjoy being ahead of the curve. Here’s the Davies and Davies guide to help self-employed go-getters tackle the mortgage scene with confidence.

Meet the self-employed: yes, we do things differently

Let’s be honest, self-employed applicants get a few extra checks compared to those on the tried and tested PAYE. While salaried folks often just wave three months of payslips and a P60, self-employed applicants get to showcase their full talents: two years of accounts, please! Think of it as giving lenders a bit more insight into the unique way you bring in income. The good news? Start planning a little early, and it can be all smooth sailing. Unlike someone who can jump into a mortgage right after a job switch, self-employed applicants will benefit from getting a head start, aiming to be fully prepped when it’s time to apply.

How lenders size up your self-employed income

Here’s the scoop: most lenders assess self-employed applicants by averaging the last two years of net profit. For sole traders, that’s total income minus expenses before tax, the number lenders want to see. They’re after an average because, well, the self-employed income river doesn’t always flow steadily. If the most recent year shows a big increase, seeing it averaged with the previous year might feel a bit like getting downgraded. On the flip side, if the recent year was a bit quiet, averaging it out can save the day. Some lenders even take the lower year as a baseline, keeping their risk low and your application looking stable.

Tax Time – a true love story

Here’s a pro-tip: avoid the January tax panic. Sure, HMRC gives till January to file, but mortgage lenders don’t always appreciate accounts that are more than 18 months old. If the last return is from April 2022, waiting until January 2024 for the next one might leave lenders frowning. Aim for a spring clean of your accounts every April, and let that habit take root. Limited company folks, take note! If your year-end isn’t April (say, it’s September), lenders still want those figures nice and fresh, no older than 18 months.

Get ready for some questions

Lenders ask questions because they like to understand the business behind the numbers. Expect questions about how income is earned, the day-to-day role, and any job titles or roles. It can feel like an interrogation, but really, lenders just want to know that the income is rock-solid for the long haul. The great news? A broker can step in and make these conversations easier. Brokers package up all that business info, so the lender has a crystal-clear view, helping secure approval without extra fuss.

Simplifying business finances (or at least clearing things up)

Keeping things clear and traceable for the lender is a smart move. While lenders ask for two years’ income records, they’ll also want three months’ bank statements. If income flows from multiple sources, gathering it all in one spot is the way to go. Got cash, bank transfers, PayPal, or a mix of payment methods? Streamline it all into a single account for easy tracking, making everything a breeze for the lender to see. Think of it as putting your best financial foot forward. Dainty!

Meet your ‘Financial Sidekick’ – Alan the accountant

Want to make lenders feel warm and fuzzy about your application? Consider hiring an accountant. Accountants aren’t just there to help at tax time; they can clarify your income for lenders and verify the strength of your business. In fact, lenders often reach out to accountants to double-check numbers and ask about the business’s stability. Accountants can be a self-employed person’s best ally, translating all the tricky numbers into lender-friendly language and helping ensure that income is fully understood and verified.

Why Billy the broker is your new best friend

As a self-employed person, choosing the right lender and mortgage product can feel like a headache. A broker knows where the best options are and can lead you right to them. While it’s possible to search online, brokers have insider knowledge of each lender’s quirks, preferences, and requirements for self-employed applicants. Income structures can be complicated, too. Some lenders prefer salary and dividends; others accept salary and net profit, with different rules for net profit before or after taxes. A broker knows how to navigate all these specifics and ensure the mortgage application is as strong as possible.

Lenders live to lend (really, they do)

That old image of stuffy bankers grilling applicants is long gone. Today, lenders are innovative, flexible, and actively looking to work with self-employed applicants. With a bit of help from a broker, applicants can feel confident that their needs will be heard. Validation from your broker? Who knew.

Don’t forget mortgage protection

Protection is just as important as the mortgage itself. Self-employed applicants may not have the safety net of sick pay, so it’s smart to consider options like income protection, life cover, and critical illness cover. A broker can help navigate these options, ensuring there’s a strong safety net in place.

Get ahead – speak to a broker now

Even if a mortgage feels like a future goal, having a chat with a broker sooner rather than later can pay off. Brokers can offer insights on how self-employment affects mortgage eligibility and help applicants make small adjustments now for a smoother application later. The result? Confidence, control, and clarity. Mortgage preparation might feel like a hoop-jumping exercise, but with the right support, it’s a journey that’s not only manageable but could actually be (dare we say it) enjoyable.

Contact us:

mark@daviesdavies.co.uk – Sales Director (contact for sales, lettings and new homes)

katrina@daviesdavies.co.uk – Head of Property & Block Management (contact for property and block management)

020 3820 2492

Davies & Davies Estate Agents, 85 Stroud Green Road, London, N4 3EG

Article & images by Barefaced Studios

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