Self-Employed Mortgage - How Much Can I Borrow?
We focus on helping the self-employed finance their first homes & forever homes!
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0203 909 1525
0203 909 1525
0203 909 1525
We focus on helping the self-employed finance their first homes & forever homes!
Get in touch for a free initial chat – we’d love to help!
Get in touch
A question we’re commonly asked is “I’m self-employed, how much can I borrow?”.
There’s no surprises there – naturally you’ll be keen to know how much you can borrow so that you can work out what deposit you’ll need to buy your first home or new home.
At Rosehill we’re not too keen on simple self-employed mortgage calculators, as criteria can differ substantially from lender to lender when assessing a self-employed mortgage application.
Therefore trying to work out how much you can borrow is not the most straightforward task.
Self-employed mortgage calculators can be very tough to navigate, as it’s not always clear what income should be added.
We’ve created this guide to help.
We’d always recommend speaking with a mortgage broker who is well-versed in self-employed mortgages to get a much better idea of your borrowing potential.
This will depend on whether you are a Limited Company Director, Sole Trader, in a Partnership or a Contractor.
The differences in lender criteria, even within these self-employed categories above, largely varies. Some specialist mortgage lenders with have a more flexible approach to self-employed applicants, too.
Let’s look at a quick overview of how lenders will generally assess your self-employed income.
Adding to the below, some lenders may also look at other sources of income too, such as company retained earnings (profits held in the business but not yet paid out) and Buy to Let income.
For Limited Company Directors, most lenders will look to use your salary & dividend figures as shown on your Tax Calculations (SA302s).
However, there are a small number of lenders who can use your share of company net profits plus your salary – if you tend to keep more money, this can help you boost your lending!
Some lenders may also allow you to use your pension contributions and car allowance.
For Sole Traders, lenders will use your net profits from self-employment to assess affordability.
To evidence your proof of income we would gather your Tax Calculations & corresponding Tax Year Overviews.
Assuming you’re in a partnership with 25% ownership or more, your income will be assessed using your share of net profits.
The documents you’ll need to gather will be similar to that of the Limited Company Directors mentioned above.
For self-employed contractors, some lenders may be able to use your daily rate for affordability, rather than your net profits from self-employment, potentially allowing you to borrow more.
We’d usually gather your current, historic and any future contracts, along with your tax calculations. corresponding tax year overviews and potentially a CV.
Whatever your self-employment set up, you can find a more comprehensive overview of documents required here.
Different mortgage lenders have different criteria surrounding self-employed applicants.
This includes which forms of income they’ll use and whether they’d average your income over the years or use the latest year’s income.
With this being the case, the maximum lending could vary quite substantially from lender to lender.
As a rough estimation, take your average your earnings over the last two years (using the figures mentioned above) and multiply this by 4.5x.
If you are taking out a mortgage with someone else, multiple your combined income by 4.5x.
There are some instances where we can use your latest year’s or one year’s accounts.
There are also some lenders who may be able to lend a little more than this – ultimately the lending will come down to a full income & expenditure assessment.
Here’s some of the main other factors involved when it comes to working out your maximum borrowing.
It’s key to note that there are many additional factors that may be involved when it comes to working out your maximum borrowing, depending on your circumstances, which is why we recommend speaking to a great mortgage broker in detail.
Lenders are generally going to be taking into account all expenditure. This will include utility bills, student loans, car finance, personal loans, credit cards, childcare costs and the list goes on!
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The more debt and committed expenditure that you have, the less disposable income that you’re going to have.
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Therefore, generally speaking, the less debt and committed expenditure you have, the more you’re going to be able to borrow.
Your dependents would be anyone who is financially dependent on you, such as children or an elderly relative.
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Similar to your debts and committed expenditure, mortgage lenders may lend you less money if you have more financial dependents.
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This is simply because these financial dependents are costing you money each month, so your disposable income will be lower.
If you have a good credit score, you may find that there’s more mortgage products available to you.
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If you have a bad credit score, you may find that you’re limited to the mortgage lenders that you can proceed with, depending on how bad your credit history is.
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You may find that an adverse credit history results in the mortgage products available to you having higher interest rates.
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This is because you’d essentially be considered as a higher risk to the mortgage lender.
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So what can impact your credit score? One example would be taking out any new line of credit. If you take out a new credit card, a loan or car finance, whichever it might be, this will impact your credit score.
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Another factor that can impact your credit score is any adverse credit (e.g. missed payments, defaults, county court judgements etc.).
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These are just a couple of factors that can impact your credit score – if I was to try to name all factors, we’d be here all day!
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Have your mortgage broker check over your credit file to see if there’d be any issues.
The mortgage product that you choose can sometimes have an impact on the maximum amount that a lender is willing to lend to you.
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For example, a lender may lend you a little bit more if you take out a product with a longer fixed period (for example a five-year fixed as opposed to a two-year fixed).
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However, this does not necessarily mean that a longer fixed period (or any fixed mortgage products for that matter) would be most suitable for you.
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Also, if you’re looking to take out a shorter mortgage term – the length of time that the mortgage actually runs for – then there may be a limit on the maximum amount that you can borrow.
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Reason being is that, once you shorten that mortgage term, the mortgage payments are going to be higher, so it’s going to eat into your disposable income that little bit more.
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The mortgage term can also be impacted by the age of the eldest applicant on a mortgage application.
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Generally speaking, the older you are when you apply for a mortgage, the lower the maximum mortgage term is like to be (although lending into retirement may be an option with some lenders).
If you have a larger deposit, you’re generally seen as lower risk to a lender.
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With this being the case, if you do have a larger deposit, some lenders may increase their maximum lending.
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On the flip side, if you have a very low deposit (for example 5%), some lenders may choose to limit their maximum lending.
Many lenders will require at least 2-3 years’ trading history before considering a mortgage application for a self-employed individual.
Of course, lenders want to be comfortable with the health & profitability of a business over a longer period of time.
That being said, there are some lenders who can consider one year’s accounts.
It is possible to secure a self-employed mortgage with as low as a 5% deposit, although a smaller selection of mortgage lenders will be available when compared to a deposit of 10% or more.
Some factors that may influence the deposit you need include:
There are schemes such as the Mortgage Guarantee Scheme through the Government which may also be available to you at the 95% loan to value range.
Generally speaking, up to a certain level, lower interest rates become available at each 5% increment in your deposit (5%, 10%, 15% and so on).
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As a mortgage is secured against your home or property, it may be repossessed if you do not keep up the mortgage repayments. Think carefully before securing any other debts against your home or property. The Financial Conduct Authority does not regulate commercial buy to lets and some forms of commercial mortgages. You may have to pay an early repayment charge to your existing lender if you re-mortgage
We typically charge between £0 to £999 for our services, which is dependent on the type of application and amount of administration required. Please refer to our terms of business for further information.
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Rose Hill Financial Services Ltd is authorised and regulated by the Financial Conduct Authority. You can find us on the Financial Services Register https://register.fca.org.uk/ under reference 912303. Registered office address: 1 Bell Street, 2nd Floor, London, England, NW1 5BY. Registered in England and Wales. Company registration no: 11997519.
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