Mortgages for the self employed and sole traders

If you are a sole trader, freelancer or run your own business without a limited company, your income is usually your net profit as shown on your self assessment. That sounds simple, and often it is. But lenders apply different rules to that figure, and the gap between the most cautious lender and the most suitable one can be significant.

We can help self employed people across many trades and professions, from consultants and creatives to tradespeople, therapists and landlords with other business income. What they tend to have in common is that a standard assessment does not quite reflect how their business is going.

How lenders assess self employed income

Most lenders start with the net profit from your SA302s and tax year overviews. Where they differ is in how they treat that figure over time.

• Two year average. The most common approach. Lenders take your net profit for the last two years and average it.
• Latest year. Some lenders will use your latest year on its own if your profit has gone up and the trend supports it. For a growing business, this can make a real difference.
• Lower of the two. Where profit has fallen, most lenders use the lower, more recent figure rather than an average.
• One year's trading. Some lenders will consider applicants with a single year of figures, particularly where you moved from employed work in the same field.

We look at averaging in more detail in your best year yet, averaged away by the lender.

Self employed situations we often help with

Recently self employed

If you have recently gone self employed, perhaps leaving an employed role to work for yourself in the same line of work, some lenders will consider you sooner than others. A strong employed track record before the switch can count in your favour.

Mixed income

Many people have a salaried job alongside freelance work, a partnership share or rental income. Some lenders can combine these, provided each part is evidenced properly.

Construction industry scheme workers

If you are paid under the construction industry scheme, lenders take different views. Some use your self assessment figures, and some will consider your gross payments using your payment statements and bank statements.

Reducing your profit for tax

Claiming legitimate expenses lowers your tax, but it also lowers the net profit a lender can use. That is a trade off to discuss with your accountant well before you apply. We won't advise on tax, but we can help you understand what your figures may mean for borrowing.

Moving to a limited company

If you are thinking of incorporating, the timing can affect your mortgage, as lenders may then want to see figures for the new company. Speak to your accountant about the tax side, and to us about how lenders would read the change. Our page on mortgages for company directors explains how company income is assessed.

Whatever your situation, all lending is subject to underwriting and valuation.

What you'll usually need

• SA302s and tax year overviews for the last two years, or for one year where relevant
• Your accounts or an accountant's reference, if the lender asks for them
• Recent business and personal bank statements
• Proof of any other income, such as payslips or a tenancy agreement
• Details of any tax owed to HMRC, including any payment plan

How we work with the self employed

1. A proper conversation. We spend 30 to 45 minutes on how your business works, how your income has moved and what you want to buy or remortgage.
2. Your documents, once. Uploaded through our secure portal against a checklist built for your income.
3. Research the market. We compare how lenders would read your figures and shortlist those that fit, with options set out in plain English.
4. Decision in principle. Obtained so you can make offers with confidence, subject to underwriting and valuation.
5. Full application. We package your case for the underwriter, explaining anything unusual up front.
6. Offer to completion. We keep the lender and your solicitor moving, and review your protection, which matters more when there is no employer sick pay behind you.

If you are buying your first home, our first time buyer mortgages page covers deposits and the steps involved. The first consultation is free. When you are ready, get in touch and we will aim to come back to you within the hour during office hours.