For many people, buying a home is one of the biggest financial steps they will ever take. For those who are self-employed, the journey to securing a mortgage can feel even more challenging. Unlike employed applicants who provide pay slips as proof of income, those who are self-employed must show their earnings in different ways. Lenders want to see stability, proof that the income is reliable and reassurance that the mortgage payments can be met without difficulty.
Understanding how long you need to be in business before applying for a mortgage is important. Lenders consider your trading history, profits and the overall strength of your financial situation. If you are considering purchasing a home and are self-employed, knowing what lenders look for can make the difference between being approved and facing rejection.
Why Self-Employed Borrowers Face More Scrutiny
Lenders often view self-employed applicants as higher risk compared to those who have a regular salary from employment. This is not always because a business owner is less financially secure. The issue is often more about consistency of income. A person in full-time employment usually gets the same amount each month, while a business owner may have periods when they earn more and others when they earn less.
Because of this potential earnings volatility, lenders want to see a longer track record before they agree to offer a mortgage. They want to know that your earnings are not only strong but also sustainable. For example, a single strong year may not be enough if it looks like your business might not continue performing at the same level. Lenders prefer to see stable income across several years, which demonstrates that your business is dependable and that you can meet long-term mortgage commitments.
How Many Years of Accounts Do You Need?
In most cases, lenders ask for at least two years of trading history. This usually means two years of accounts, completed tax returns or self-assessment documents from HMRC. Some lenders may request three years of accounts, especially if your income has varied significantly from one year to the next. The more evidence you can provide, the stronger your application will look.
There are a few lenders who will consider applicants with only one year of accounts, but this is less common and may come with higher interest rates or stricter lending terms. Having a longer history of stable profits usually works in your favour. The more you can prove the strength of your business, the easier it becomes to show that you are a safe borrower.
The Importance of Consistency in Earnings
When reviewing your application, lenders will not only check for how long you have been self-employed but also how steady your income has been. For example, if you earned £40,000 one year and £20,000 the next, this may raise concerns. Lenders may assume that your income is unpredictable. In such cases, they may also use your lowest annual income as the basis for calculating how much you can borrow.
Consistency is just as valuable as profitability. If your accounts show a steady and gradual rise in income, lenders are likely to feel reassured about your ability to manage a mortgage. On the other hand, sharp rises and falls can make them cautious. Planning ahead and keeping your income records as stable as possible can give you a better chance of approval.
Documents Lenders Will Expect
If you are self-employed, you will be asked to provide a set of documents to prove your income. The most common request is for SA302 forms and tax year overviews from HMRC. These confirm your declared earnings and the tax you have paid. In addition, lenders often want to see tax returns and accounts that have been signed off by a qualified accountant.
Bank statements are also important. Lenders may request up to six months of personal and business bank statements. These documents help them see the pattern of your income and expenses over time. Good record-keeping is essential. If your accounts and paperwork are clear and well presented, the process will run more smoothly and may improve your chances of success.
The Role of a Bookkeeper/Accountant
Having a bookkeeper or an accountant is not only helpful for your business but can also make a significant difference when applying for a mortgage. Lenders often prefer accounts that have been prepared and verified by a professional accountant. This gives them more confidence in the accuracy of the figures. If your accountant is registered with the ACCA or ICAEW, this can further reassure the lender.
An accountant can also advise before you apply. For example, if you are planning to buy a property in the next year, your accountant can help ensure your accounts are presented in the best possible way. They may also advise you on how your drawings or reinvestments into the business can affect your affordability calculation with lenders.
Specialist Lenders for the Self-Employed
The usual high street lenders may not always be the most flexible options for self-employed mortgage applicants. If your business is new or your income does not fit the traditional model, you may find more success with a specialist lender. These lenders are used to working with self-employed people, contractors and freelancers, and may have more flexible criteria.
However, specialist lenders may charge slightly higher interest rates and fees. The advantage is that they can be more understanding of different income patterns. For example, if you have only been self-employed for one year but have strong projected earnings, a specialist lender may be more willing to consider your application than a standard lender.
Improving Your Chances of Approval
There are several steps you can take to improve your position before applying. Keeping your accounts up to date and accurate is important. Lenders want to see figures that are easy to follow and consistent with what you have declared to HMRC. Reducing personal debt can also help, as lenders look at your overall financial commitments when deciding.
Another way to improve your chances is by putting down a larger deposit. The higher your deposit, the less risky you appear to lenders. A larger deposit not only improves your affordability but may also help you access lower interest rates. Preparing in advance and making sure your finances are in good order will place you in a stronger position when you apply.
Mortgages for Contractors and Freelancers
Contractors and freelancers face slightly different challenges when applying for a mortgage. Instead of relying on long-term accounts, lenders may look at your contract history and future work agreements. For example, if you have a six-month contract at a high daily rate, some lenders might be willing to calculate your annual income based on this.
Freelancers with multiple clients may need to provide a longer history of earnings, often two years or more. The key factor is proving that your income is sustainable. Providing contracts, invoices and records of regular work can help reassure lenders that you have ongoing stability.
Conclusion
Being self-employed does not mean you cannot secure a mortgage. It does mean you need to prepare more carefully and be ready to prove your income with reliable evidence. Most lenders will want at least two years of accounts and other records, although some may require three, while yet others may consider just one. Planning, saving a healthy deposit and working with an accountant or broker can make the process smoother and improve your chances of getting the mortgage you need.
FAQs
Q. How many years do I need to be self-employed to get a mortgage?
A. Most lenders look for at least two years of accounts. Some ask for three years, while a few specialist lenders may consider just one.
Q. What documents will I need to provide?
A. You will usually need SA302 tax documents, tax year overviews and bank statements, as well as tax returns. Most lenders will also want to see the business's accounts signed by a qualified accountant.
Q. Will a larger deposit help my application?
A. Yes. The more you can put down, the lower the risk for the lender. A larger deposit can improve your chances of approval and may also give you access to better interest rates.
Q. What if my income varies each year?
A. If your income goes up and down, lenders may use the lowest figure to calculate what you can borrow. Consistency is important, so showing steady growth is better than sharp changes.
Q. Are freelancers treated differently from other self-employed workers?
A. Freelancers may need to show two or more years of income history. Contractors may be assessed on their current contract value and the likelihood of renewal.
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