Self Employed Mortgage Advice

How much can I borrow if I’m self-employed? How many times my salary can I borrow for a mortgage?

Typically you can borrow four to 4.5 times your annual income, even up to five times in some cases. For high earners and specialist professionals, we sometimes see 5.5 times income.

Remember that outgoings, dependent children and credit commitments are also factored in, and that can reduce affordability.

What mortgage deposit do I need if I’m self-employed? Can I use my self-employment grant as a deposit towards a new build property?

There’s no separate deposit rule for self-employed borrowers. The deposit requirements depend on the mortgage type, the Loan to Value ratio and the lender’s risk appetite. Your employment status is less important.

Having said that, for self-employed buyers some lenders prefer a 10% to 15% minimum. Mortgages with a 5% deposit do exist, but they’re harder to get if the income is variable and you’ve got a shorter track record.

A 15% deposit or more will significantly improve your odds of approval and your options.

That’s especially true for new builds where lenders are already more cautious about valuation risk.

Using a grant will depend on the grant itself. You can often use a grant that’s not repayable, that’s legally yours with no callback conditions built into it. It would need to be sitting in your bank account already with evidence of where it came from.

How will I be assessed as a self-employed mortgage applicant for a new build property? Will IR35 affect my mortgage application?

Lenders won’t treat you differently because the property is a new build or because you’re self-employed – but both factors make underwriting a little stricter when combined. Lenders will look more closely at stability, consistency and your documentation.

IR35 won’t stop you getting a mortgage, but it does change how lenders view your income. If you’re inside IR35, you will be treated more like an employed person, whereas those outside IR35 will be viewed as self-employed. Lenders like predictability, so any change to IR35 status does trigger more questions.

How will a lender calculate my self-employed mortgage earnings? How do I prove my income?

For sole traders, it’s net profit after expenses. That’s documented in your SA302s or tax calculations. For company directors, it’s salary plus dividends, or there’s also an option to use salary plus the share of company net profits.

Often with the latter we see higher lending amounts, because company net profits for a sole shareholder are usually higher. The multiples we discussed earlier are then applied, which vary between lenders.

The factors that can reduce your affordability are also included – credit commitments, children and the Loan to Value ratio, for example.

You’ve demonstrated how a mortgage broker can help – is there anything else you’d like to add?

Just make speaking to a mortgage advisor the first thing you do. We know our way around the market and we know the criteria, which change on a regular basis. We’re always up to date with it.

We help you through everything and make it smooth and efficient – it’s much simpler than doing it all yourself.

Key Takeaways:

• Self-employed individuals, including sole traders and limited company directors, are eligible for new build mortgages, though lenders typically prefer a track record of two to three years of accounts.
• Income is calculated based on net profit for sole traders, while limited company directors can often use a combination of salary and dividends or a share of company net profits.
• Documentation requirements are stricter than for employed applicants, typically requiring SA302 tax calculations and potentially accountant references to prove income stability.
• Borrowing limits generally range from 4 to 4.5 times annual income, though high earners or specialists may access multiples up to 5.5 times depending on outgoings and credit commitments.
• A deposit of 10% to 15% is recommended to improve approval odds for new builds, as lenders are often more cautious regarding valuation risks and high Loan to Value ratios.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.

The information contained within this article was correct at the time of publication but is subject to change.