January 22, 2024
Fees Free Mortgage Team

What is a Self-Employed Mortgage?

January 22, 2024 - Fees Free Mortgage Team

What is a Self-Employed Mortgage?

When you’re self-employed the path to securing a mortgage is significantly different to a traditional mortgage – but different doesn’t necessarily mean impossible. Whether you’re a seasoned freelancer, run your own business, or are just starting out on your self-employment journey, there are several twists and turns you need to be prepared for.

Luckily for you, Fees Free Mortgages is your guiding hand to your self-employed mortgage success. From understanding income verification to mastering your documentation, we’re here to turn securing your mortgage from daunting into doable. 

What is a Self-Employed Mortgage?

While traditional mortgages rely heavily on a steady, predictable income, self-employed mortgages are different. After all, when you’re self-employed, your income might not follow the typical 9-to-5 pattern. It can often fluctuate – looking different from one month to the next.

Self-employed mortgages take this into account. They’re designed for people whose income might ebb and flow, like freelancers, business owners, or gig workers.  Lenders providing them will usually check out your tax returns, bank statements, and sometimes even your business’s cash flow to get a full picture of your financial health.

How Do Self-Employed Mortgages Differ From Traditional Mortgages?

Securing a self-employed mortgage can seem daunting, especially when it comes with different criteria and considerations compared to traditional mortgages. But, by understanding your options, you can ensure you’re well-equipped to make the best decisions.

Income Verification

For those in regular employment, providing proof of stable, regular income is relatively easy. Your lender will likely use recent pay slips and a P60 form as a form of evidence that you can manage mortgage repayments. 

Self-employed people might find this process a little trickier. The best way to kickstart the process is generally to find a broker or lender accepting of the fact that your income might not follow the regular patterns of traditional employment. 

To evaluate whether or not you’ll be able to keep up with mortgage repayments, they might take a closer look into your financial evidence over the past two to three years, which could include SA302 tax calculations, tax year overviews, and bank statements. These documents give a full view of your financial situation to help your lender understand the fluctuations in your income, like business growth, expenses, and investments. 

Length of Financial History

Most ‘conventional’ lenders will look at a relatively small snapshot of your financial history – with one or two years being enough to satisfy in most cases. They’re able to do this as people in traditional employment tend to have more stable records of employment and income. 

Those embarking on a self-employed mortgage are required to lay more of their cards on the table. Lenders offering self-employed products will usually ask for a longer financial track record, typically spanning between two to three years, and sometimes even more. 

This extended history helps your lender assess the sustainability and predictability of your earnings, including how your business has weathered different cycles and how your income has changed over time. So, while this is a more demanding process, it gives your lenders the assurance they need to extend credit in cases where your income is unpredictable.

Flexibility and Tailoring

Conventional mortgage products offer just what they say on the tin. They’re generally tailored to the needs of those with a steady employment record, a regular income, and a clear credit history, and don’t offer much wiggle room. Whilst this can work well for those in a ‘regular’ financial position, it’s not the best option for those in need of a little flexibility. 

Self-employed mortgage products, on the other hand, give you the freedom to follow a less linear path to homeownership. Lenders offering them will look beyond your pay check to factors including fluctuating income, different types of earnings, and business health. This approach ensures that the mortgage you finally settle on isn’t just a financial agreement, but a tailored solution to fit your professional and financial life.

Interest Rates and Fees

When you have a regular job, getting a mortgage is a bit more straightforward. Your lender will look at your steady job and predictable income, and offer interest rates and fees based on a standard risk assessment. Because your regular income is seen as more stable, the risk for the lender is usually considered lower. This means that the extra charges, like arrangement fees or mortgage product fees, are often set at standard rates.

Since self-employment often means your income can vary, lenders might see your application as riskier. This could mean higher interest rates and fees compared to a traditional mortgage. But remember, this isn’t always the case. Your mortgage rates and fees will usually be adjusted to your unique financial situation. For example, if you have a solid financial history and a strong credit score, you’re more likely to get better rates. 

Documentation and Scrutiny

Applying for a traditional mortgage is relatively smooth sailing. Lenders will require standard documents verifying your identity, employment status, income, and credit history. These might include your ID, pay slips, a P60 form, or bank statements reflecting your income and outgoings. This process ensures your current financial status aligns with the criteria set by your lender. 

With a self-employed mortgage, you might find you’ll have to dig deeper to find those important documents. Your lender will likely require a broader range of financial records to get the full picture of your financial health and income stability. These documents, spanning at least two to three years, will include tax returns, bank statements, and any other evidence that can demonstrate the sustainability of your income, like upcoming contracts. While it might seem excessive, this in-depth review means your lender can accurately assess your viability.

What is the Eligibility Criteria for a Self-Employed Mortgage?

Securing a self-employed mortgage is all about showcasing the strength and stability of your financial standing. It’s not just about meeting the basic requirements but presenting a strong financial profile that aligns with your lender’s expectations. 

Proof of Income

Your income is crucial in your mortgage application when you’re self-employed. Lenders don’t just give a quick look at your earnings; they delve deeper, searching for consistency and longevity, typically over two to three years. 

Credit History

Your credit history gives your lender a general overview of your reliability and financial behaviour. If you’ve got a strong credit history, complete with timely bill payments, responsible credit management, and an absence of defaults or bankruptcies, lenders are more likely to consider extending credit and offer better deals.


If you’ve got a larger deposit at the ready, you’ll be pleased to know that it could reward you with more favourable interest rates and mortgage terms. This is because it’s a clear indication for lenders that you can exhibit discipline when it comes to saving, and are savvy with financial planning. In some cases, your substantial deposit can even compensate for those areas where your application might be weaker, like fluctuating income levels.

Length of Self-Employment

Whether you’re in it for the long run or just looking for a temporary fix, the duration of your self-employment can play a critical role in your search for a mortgage. 

Lenders typically want to see a minimum of two to three years of self-employment history from you. This period of time gives them the ability to assess just how sustainable and viable your income is. 

Business Stability and Type

You may not realise it but the type, structure, and health of your business is one of the factors put under your lender’s microscope during your application process. Why? Because your lender wants to know about the sector you’re operating in, how your business is set up (whether as a sole trader, partnership, or limited company), and the financial health of your company. This means looking at all things to do with your business, whether that’s profitability, cash flow, or business expenses.

Affordability Assessment

While the majority of your eligibility is based on your income, your lender will also conduct a thorough affordability assessment for your self-employed mortgage. This assessment involves lenders taking a look at your overall financial situation, including your monthly expenses, existing debts, and other financial commitments. In doing this, they ensure that you can comfortably afford your mortgage repayments without stretching your budget too thin.

What Mortgage Options Are Available for Self-Employed Individuals?

With the right information and a bit of planning, you can find a mortgage that not only fits your current financial situation but aligns with your future aspirations:

Standard Residential Mortgage

As a self-employed individual, you might think that you don’t have access to traditional mortgage products. Whilst there are certain restrictions in place, some lenders are willing to offer standard products subject to a close look at your self-employed accounts and tax returns.

Fixed-Rate Mortgage

In the face of fluctuating self-employed income, you might find yourself seeking some financial consistency. In that case, a fixed-rate mortgage could be your go-to option. These mortgages lock your interest rate for a set period, meaning your monthly payments stay the same. They’re a great way to plan your finances without having to worry about surprise interest rate changes.

Variable Rate Mortgage

However, if you want a mortgage that’s as flexible as your career, then a variable rate mortgage can give you what you’re looking for. The interest rate on these mortgages changes in line with the wider economic climate. 

While you might find that variables offer lower rates compared to fixed mortgages, it’s important to remember that they can go up, so a bit of financial cushion is essential.

Tracker Mortgage

Tracker mortgages often slip under the radar, which is why you may not have heard of them. They’re a type of variable mortgage under which your interest rate ‘tracks’ a base rate – usually the Bank of England’s. When the rates are low, you’re the one who benefits. However, you’ll need to have your wits about you if/when those rates increase.

Offset Mortgage

If your self-employed income isn’t consistent, consider using an offset mortgage. This product links your mortgage to your savings account, meaning the amount in your savings is used to ‘offset’ your balance. 

This means you pay less interest on the mortgage because it’s calculated on the reduced balance. It’s a smart strategy to make your savings do more for you, helping you manage your mortgage more effectively.

Financial Freedom

Equity release mortgages give you an alternative to financial flexibility that isn’t typically available through other means. Using them, you can unlock equity tied up in your home, turning it into cash you can use now. Whether it’s for bolstering your monthly pension to cover living costs or splurging on an item you’ve had your eye on, the financial breathing space it provides allows you to live your retirement on your terms.

Interest-Only Mortgage

For this mortgage type, all you need to do is pay the interest each month. The catch? You’ll need to pay back the principal at the end of the mortgage term. So, while it means lower payments now, you’ll need to have a solid plan for paying off that lump sum later. 

Guarantor Mortgage

When you’re self-employed, meeting standard lending criteria can be difficult. If you’re stuck with no offers, a guarantor mortgage could be the answer to your problem. 

They involve someone, usually a family member, guaranteeing to cover your mortgage if you’re unable to. It’s an ideal way to send your application’s strength soaring, especially when building your business.

Government Scheme

In the midst of mortgages, you might have forgotten about government schemes like Help to Buy or Shared Ownership. They’re a fantastic option for self-employed first-time buyers, making homeownership more accessible with lower upfront costs. 

It’s worth exploring these options to see if they bring you that step closer to making your dream home a reality. 

What Is the Application Process for a Self-Employed Mortgage?

Moving through the application process for a self-employed mortgage might seem like a process with a few extra twists and turns, but it’s all about showing the strength and stability of your finances. 

Initial Preparation

This is where your credit history takes centre stage. Here, your lender will take a closer look at your credit report. So, it’s a good idea to take a peek at this yourself beforehand. Start by ensuring that everything is accurate and up to date. By doing so, you can address any issues early to smooth out that long road ahead.

Finding the Right Mortgage Product

Now, it’s time to find the right mortgage product for you. With options like fixed-rate, variable, or offset mortgages, it’s all about choosing a product that aligns with your financial goals and lifestyle. But, don’t fret, you don’t have to make this decision alone. By working with a good broker, like Fees Free Mortgages, we can guide you through the various options available.

The Application

When it comes to the application, there’s no room for errors. Here, you’ll be asked to provide detailed information about your income, outgoings, and your business. By making sure that your application is thorough and accurate, you can significantly enhance your chances of approval, ensuring all that preparation pays off.

Property Valuation

Once your application is in, it’s no time to relax. Your lender will usually arrange for a valuation of the property you’re interested in. This is to ensure that the property you’ve got your sights set on is worth the investment you’re making. This isn’t just for those of you who are self-employed, it’s a standard part of the mortgage process, no matter your employment status.

Underwriting Process

Once your application moves into the underwriting stage, your lenders will take a deep dive into your finances. They’ll assess your income stability, affordability, and the viability of your business. It’s a detailed review, but it’s important to remember that this stage is for both you and your lender’s benefit, ensuring that the mortgage is a good fit for both of you.

Decision Time

After the underwriting process, it’s time for the decision day you’ve been waiting for. If it’s a ‘yes’, fantastic! This means you’re on your way to homeownership. However, if it’s a ‘no’, don’t be disheartened. Think of it as an opportunity to reassess and fine-tune your financial situation, or explore different mortgage products. 

Offer and Completion

With an offer in hand, it’s time to dot the i’s and cross the t’s. Start by reviewing the mortgage offer carefully, ensuring that all the details are correct and that you understand the terms you’re agreeing to. After you accept the offer, it’s only a matter of final legal checks, and then you’re a homeowner!

The Role of Fees Free Mortgages In Your Self-Employed Mortgage

Finding a mortgage that fits your self-employed status can be challenging, meaning getting the right support and advice throughout your journey is crucial. 

That’s where Fees Free Mortgages come in. Our team is dedicated to providing you with clear, jargon-free advice, ensuring that every step of your mortgage journey is as smooth and understandable as possible. 

We take the time to understand your unique financial situation, offering you tailored solutions that best fit your individual needs. Plus, our approach isn’t just transactional – we build relationships through continuous support and insights that make a real difference. So, why not contact us and become not just a client, but a valued customer in your exciting progress to owning your dream home? 

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