Mastering the Self-Employed Mortgage Journey

Buying a home is a big step, and it can feel even more complicated when you're self-employed. We understand the challenges that come with proving your income and securing a mortgage when you don’t have a conventional salary. But don’t worry - with the right approach and guidance, getting a mortgage as a self-employed person is entirely possible.

This blog will walk you through the process and explore how self-employed mortgages can make your dream of owning a home a reality.

Understanding self-employed home loans

When you’re self-employed, lenders look at your finances differently. Unlike salaried employees, your income might fluctuate and you might not have the usual payslips or P60s to demonstrate the affordability of a mortgage.

This means lenders will need other evidence to demonstrate affordability and a clear, consistent picture of your earnings over time.

What do lenders typically require?

• At least two years of accounts or tax returns

• Proof of consistent income and profitability

• A good credit history

• A reasonable deposit (usually 10% or more)

If you’re a freelancer, a contractor or you run your own business, self-employed home loans exist that are designed to accommodate your financial situation. They take into account your business performance and personal income, and give you a fair chance to secure a mortgage.

Tips for preparing your application:

• Keep your business accounts up to date and accurate

• Work with an accountant to ensure your tax returns reflect your true income

• Avoid large, unexplained deposits in your bank accounts

• If possible, save for a larger deposit to improve your chances

By understanding what lenders want, you can be prepared and have your paperwork ready and avoid surprises during the application process.

How self-employed home loans work

Self-employed home loans work similarly to regular mortgages but with some extra steps to verify your income. Lenders will often ask for:

• Tax returns: usually the last two or three years

• Business accounts: prepared by a certified accountant

• Bank statements: to show income deposits and business expenses

• Proof of ongoing contracts or work: to demonstrate future income stability

The key is transparency. Lenders want to see that your business is stable and that you can afford the mortgage repayments. This means showing consistent profits and a healthy cash flow.

Interest rates and fees

Sometimes, self-employed home loans might have slightly higher interest rates or fees because lenders see self-employed borrowers as a higher risk. But this isn’t always the case. Working with a specialist mortgage broker means you can find competitive deals tailored to your situation.

Actionable advice:

• Use a mortgage broker who understands self-employed applications

• Get all your financial documents together early

• Be honest about your income and business situation

• Consider whether you need to work on improving your credit score before applying

  
  

With the right support, the process becomes much smoother, and you’ll feel more confident moving forward.

Can self-employed people get a 5% mortgage?

We’re often asked whether self-employed people can get a mortgage with just a 5% deposit. The good news is that it is entirely possible, but there are some important points to consider.

Lenders offering 95% mortgages (meaning you only need a 5% deposit) usually have stricter criteria for self-employed applicants. They will most likely want to see:

• Strong, consistent income over at least two years

• A good credit history with no recent defaults

• A stable business with evidence of ongoing contracts or clients

• Potentially, a larger buffer in your finances to cover repayments

If you’re concerned, please talk to a mortgage broker and they can help you to maximise the chances of a successful outcome. However, it’s essential to be realistic about your financial situation and prepare thoroughly.

There are a few things you can do to improve your chances:

1. Save as much as possible for your deposit and the additional costs associated with buying a house

2. Keep your business accounts clean and up to date

3. Avoid taking on new debt before applying

4. Work with a mortgage broker who specialises in self-employed home loans

   
   

By planning carefully and seeking expert advice, you can access competitive mortgage deals even with a smaller deposit.

Common challenges and how to overcome them

Navigating the mortgage application process can often have hurdles to clear – especially as a self-employed person. Here are some common challenges and practical ways to tackle them:

1. Proving income consistency

Lenders want to see steady income. If your earnings vary, this can be tricky. As well as providing detailed accounts and tax returns, repeated invoices can demonstrate ongoing contracts or work. Also, if your income has increased recently, make sure you can explain why this happened clearly, as well as the likelihood of this continuing.

2. Manage your credit history

Missed payments or defaults on credit agreements can hurt your chances. Keep an eye on your credit report and check it before contacting a broker. Fixing any errors and paying off debts will help improve your score. It’s also wise to avoid applying for multiple credit products before your mortgage.

3. Saving for a deposit

A larger deposit improves your chances and may lower your interest rate. Setting up a dedicated savings account and building this ahead of an application can have a significant impact. It’s also wise to cut out unnecessary expenses.

4. Understanding mortgage options

Not all mortgages are the same, and some are better suited for self-employed borrowers. Using a mortgage broker who knows the market and understands the nuances of self-employed applications can make a big difference. They can find deals that match your profile and explain the terms and requirements clearly.

By anticipating these challenges, you can be better prepared and reduce stress during the application.

Making the most of local knowledge

When it comes to securing a mortgage, local knowledge can be a real advantage. Working with a mortgage broker based where you live means you will get advice tailored to the local property market and lending environment. Local knowledge can count for a lot.

Bay Mortgages specialises in helping self-employed buyers in and around Dorset. We understand the unique challenges and opportunities in the area, and our personalised approach means you get support every step of the way, from initial advice to final approval.

Why choose local brokers?

• They know local lenders and their criteria.

• They understand the property market trends in Dorset.

• They offer face-to-face meetings for personalised service.

• They can help you access exclusive mortgage deals.

If you’re ready to start your journey, consider reaching out to a local expert who can guide you confidently through the process.

Getting a self-employed mortgage doesn’t have to be daunting. With the right preparation, clear information, and expert support, you can secure the home loan you need. Remember, every step you take brings you closer to owning your dream home.

Let’s make it happen together!