Mortgages for the Self-Employed and Company Directors

Is it harder to get a mortgage if you are self-employed?

The mortgages are the same. The difference is the evidence. An employee proves income with payslips and a P60. Self-employed applicants and company directors have to show what they earn over time, so lenders usually want a longer track record and more documents.

What lenders usually ask for

• Accounts. MoneyHelper says self-employed applicants need two to three years of accounts, prepared by an accountant.
• SA302 tax calculations and tax year overviews. These come from HMRC and show your income for each tax year. You can get SA302s for the last four years once your Self Assessment return is filed.
• Bank statements that back up the income shown.
• The usual documents everyone provides: identity, address and proof of deposit.

If you file online, you can print an SA302 yourself 72 hours after sending your return. Check first that your lender accepts self-printed copies.

Sole traders and partners

For sole traders, lenders usually look at net profit from the tax returns. For partners, they usually look at your share of the partnership's profit. Many average the last two years or use the latest year if it is lower, so a fall in profit tends to count more than a rise.

Limited company directors

A director's income is often a mix of a small salary and dividends, and some profit may be kept in the company. Lenders differ in what they count. Some use salary plus dividends from the tax returns, while others will consider your share of the company's profit, which can give a higher figure. Your accountant can help you understand which figures lenders are likely to see. The same pattern of income affects protection, covered in income protection for limited company directors.

Contractors

Contractors working through their own limited company can be assessed as directors. Some lenders instead look at the contract day rate and annualise it, especially with a track record of contracting. Practice varies, so expect questions about contract length and gaps between contracts. Income protection for IT contractors covers the safety-net side of contracting.

Getting ready to apply

• Keep accounts and Self Assessment returns up to date and filed on time.
• Download SA302s and tax year overviews for the last few years.
• Keep business and personal finances in separate accounts.
• Check your credit report before applying.
• Get a mortgage in principle to test what a lender might offer before house hunting.

Why protection matters more without sick pay

Most self-employed people and many directors have no employer sick pay, so income can stop quickly if illness prevents work, while the mortgage payment carries on. That is the gap income protection is designed to fill.