Self-employed and directors
You are not harder to lend to. You are harder to read.
There is no such thing as a self-employed mortgage. There is one mortgage market and a dozen different ways of reading your accounts - and the gap between the most generous reading and the least is regularly the difference between a flat and a house.
How each type of self-employment is read
| You are | What they usually use | Evidence |
|---|---|---|
| Sole trader | Net profit, averaged over two years or taken from the latest year if it is lower | SA302 tax calculations plus tax year overviews, two to three years |
| Partnership | Your share of net profit | SA302s and partnership accounts |
| Limited company director | Salary plus dividends, or with the right lender, salary plus your share of net profit before tax | Two years of company accounts and an accountant's certificate |
| Contractor on a day rate | Day rate multiplied by days worked a week, then by 46 or 48 weeks | Current contract and a track record in the same line of work |
| CIS subcontractor | Gross income from payslips or vouchers, treated by some lenders like employment | Six months of CIS vouchers or payslips |
The single biggest lever for company directors
Most lenders will use your salary plus the dividends you actually drew. But a good accountant leaves profit in the company for perfectly sound tax reasons - and that profit is invisible under the standard reading. A minority of lenders will instead use salary plus your share of net profit before tax, whether you drew it or not. For a director who pays themselves modestly and retains the rest, this single difference routinely doubles what they can borrow. Knowing which lenders do it, and how they want it evidenced, is most of the job.
How many years of accounts do you need?
The default answer is two. It is not the only answer.
- One full year is accepted by a reasonable number of lenders, especially where you were doing the same work as an employee immediately before, and where the figures are strong.
- Two years opens up most of the high street.
- Three years gives the widest choice and the best rates, and lets a lender average out one weak year.
Note which figure gets used. Where profits are rising, some lenders average the last two years and some use the most recent year - and the second is obviously better for you. Where profits are falling, nearly everyone uses the lower or latest figure, and a sharp drop invites questions about whether the business is in trouble. If your last year was down for a specific and explainable reason, say so up front with evidence; a covering note from your accountant carries real weight.
Get these right before you apply
- File your tax return on time. Lenders want the latest SA302 and tax year overview, and they must match. A return filed but with tax unpaid is a red flag - clear it first.
- Do not let your accountant over-optimise the year you buy. Aggressively minimising declared profit saves a little tax and can cost you a house. If you are planning to buy in the next two years, tell your accountant that before they finalise anything.
- Keep business and personal banking separate. Mixed accounts make underwriting slow and make you look disorganised.
- Watch the director's loan account. A large overdrawn loan account is treated as a debt you owe the company and will reduce what you can borrow.
- Use a qualified accountant. Many lenders require the certificate to come from someone with a recognised qualification - ACA, ACCA, CIMA or similar. If yours is not qualified, that alone can close doors.
What we do with it
The same accounts, read four ways.
Take a director on a £12,570 salary, £20,000 of dividends and £60,000 of profit left in the company. Here is what different lenders see.
| Reading | Income counted | Indicative borrowing |
|---|---|---|
| Salary only | £12,570 | £56,565 |
| Salary plus dividends | £32,570 | £146,565 |
| Salary plus share of net profit | £72,570 | £326,565 |
| Salary plus profit, at 5x | £72,570 | £362,850 |
Same person, same company, same year. The only variable is which lender reads the file. This is an illustration to show the size of the effect, not a quotation - your own figures depend on a full assessment.
Common questions
Self-employed questions
I have been trading under a year. Is there any chance?
Realistically, very little for a first year with no prior history in the same field. The strongest exception is where you did exactly the same work as an employee and then went contracting or set up a company doing it - some lenders will bridge that with your employment history plus the current contract. If you can wait until one full year of accounts is filed, your options improve enormously.
My latest year was worse than the one before. What happens?
Most lenders will use the lower figure and some will want an explanation. What helps: a clear, specific reason - a one-off investment, a lost contract since replaced, a period of illness - backed by a note from your accountant and, ideally, management accounts showing the current year recovering. What does not help is silence.
Do I pay a higher rate for being self-employed?
No. If you fit a mainstream lender's criteria you get the same rates as anyone else. The cost of being self-employed is not the rate, it is the narrower choice and the extra paperwork - and if you end up with a specialist lender because nobody explained the mainstream options, then yes, you pay more than you needed to.
Can I use retained profit if I am a 50% shareholder?
Generally yes, at your shareholding percentage, with the lenders that consider retained profit at all. Where it gets complicated is with multiple shareholders who do not all want to borrow, or where the profit is genuinely needed as working capital. Bring the accounts and we will tell you what is realistically usable.
Start here
Send the accounts. We will tell you what they are worth.
Two years of figures, or one if that is what you have. We will come back with what each type of lender would count and the realistic borrowing range.
- The first conversation is free
- No credit check, no hard search
- A reply within one working day
Prefer to talk now? Call 0333 339 7301 or email [email protected].