Self-Employed, Self-Empowered

Martin Green, Director, J&M Green Mortgage Services Ltd

Struggling to understand how self-employed mortgages work? Martin Green explains what lenders look for – and why securing one might be easier than you think

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My name is Martin Green from J&M Green Mortgage Services Ltd on Allerton Road. I’m an independent mortgage adviser with 20 years of experience, and my firm has completed well in excess of 10,000 mortgages over the years.

In this article, I’ll explain how mortgages for the self-employed are assessed, what evidence lenders usually need, and where there can be flexibility.

Being self-employed can feel like a hurdle when you apply for a mortgage, mainly because income can fluctuate and isn’t guaranteed in the same way as a fixed salary. For that reason, lenders usually take a closer look at how much you earn, how consistent the business is, and whether the income you declare is sustainable.

The good news is that self-employed underwriting isn’t one-size-fits-all, and the way your income is assessed can vary by lender and by business structure. Lenders assess self-employed income retrospectively – typically, you’ll need at least 12 months’ trading history, and many high street lenders prefer two years of accounts or HMRC tax documentation. Where profits are rising, lenders often average the latest two years; if profits have fallen, they typically use the most recent year.

Some lenders will consider one year of accounts when supported by an accountant’s projection/covering statement – often via specialist lenders, although there are also limited high street options.There are exceptions to this rule though. Some lenders can consider newly self-employed professionals (for example, doctors, dentists, or solicitors) where there’s a strong employed track record in the industry and evidence of ongoing or future income.

Likewise, if you’ve moved from sole trader to a limited company, a lender may take comfort from the sole trader history even if the limited company itself is new and hasn’t filed accounts.How your income is evidenced depends on how you trade. Sole traders commonly use HMRC SA302s (your tax calculation) and the Tax Years Overview to confirm the figures and show taxes are up to date; lenders base affordability on net profit.

For limited company directors, most lenders assess a combination of director’s salary and dividends. Eligibility and the documents requested can vary, and many lenders focus on directors with a meaningful shareholding (often around 20%, although this can vary by lender).Because self-employed income can rise and fall, lenders look for stability: consistent performance, sensible business finances, and a story that matches the numbers.

A set of accounts doesn’t always show seasonality, one-off costs, or a strong order book – so clear supporting documents and a straightforward explanation can make a real difference in underwriting.

Once a lender has agreed what income figure to use, it’s generally treated like employed income in the affordability model. The key is presenting the right evidence and context. For example, if a sole trader has a vehicle finance payment showing on their personal credit file, some lenders may exclude it from affordability where an accountant confirms it’s a genuine business expense rather than personal spending.

Limited company directors may have additional options. Some lenders can assess your share of company profit after tax (plus director’s salary) rather than just what you draw as salary/dividends. This can help if you retain profits in the business for cashflow or tax planning. For instance, if you pay yourself £50k but the company makes £100k profit after tax, certain lenders may consider the higher profit figure rather than what you’ve actually paid yourself.

If you’re self-employed and unsure where you stand, the first step is to speak to an independent broker. Issues that look like obstacles – limited accounts, a recent change in trading style, fluctuating profits – can sometimes be positioned clearly with the right lender and documentation to be bypassed or even used to your advantage.

Get in touch on 0151 230 0909 or visit www.gmsltd.co.uk for more information on self-employed mortgages

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