Starting out on your own as a business owner is exhilarating, but securing a mortgage as a self-employed individual may feel a bit more daunting.  

Challenges faced by self-employed people in securing mortgages

Unlike salaried employees, self-employed individuals sometimes face additional hurdles when applying for a mortgage, such as:

• Irregular income streams – lenders may see fluctuating income as a risk
• Stringent income verification requirements – more detailed information and paperwork may be required  by lenders as evidence of income to assess a mortgage application and affordability
• Higher deposit expectations – some lenders may request a larger deposit to mitigate perceived risk, although typically you’ll probably need 5% to 10% of the property’s value
• Limited high street lender options – many traditional banks may have stricter criteria that doesn’t always suit entrepreneurs. A fee free mortgage broker like Save On Mortgages will be able to help you find a lender that caters for self-employed individuals and secure a competitive deal. Being self-employed or a freelancer doesn’t mean you can’t get a mortgage.

Benefits of getting a mortgage as a self-employed individual

Despite the challenges, there are advantages to securing a mortgage as a self-employed individual:

• Greater financial control – owning a home provides stability, unlike renting
• Wealth building –investing in property helps you build equity over time
• Tailored mortgage options – specialist lenders cater to self-employed and freelancing professionals with flexible terms.

Steps to prepare for applying for a mortgage

Preparation is key to securing a mortgage with favourable terms. Follow these steps:

1. Improve credit score – ensure your credit score is strong by paying off debts and managing credit responsibly
2. Organise financial records – maintain accurate and up-to-date accounts to demonstrate financial stability
3. Save for a larger deposit – a higher deposit can improve mortgage approval chances and help secure a more competitive rate
4. Reduce business expenses – while tax deductions are beneficial, high expenses can lower your taxable income, making mortgage approval harder
5. Consult a (FEE FREE) mortgage adviser – expert advice can help you find the right mortgage product at no additional cost to you.

Documents required for self-employed mortgage applications

Lenders typically request the following documents from self-employed applicants:

• Two or more years of tax returns (SA302s)
• Certified accounts or profit & loss statements
• Bank statements (personal & business)
• Proof of identity & proof of address
• Business contracts (if applicable).

Having these ready can streamline the mortgage application process.

Finding the right lender for self-employed mortgages

Not all lenders have the same criteria for self-employed applicants. Consider:

• Specialist lenders – understand the complexities of self-employed income
• Mortgage brokers – can match you with lenders offering the best terms.
• Fee free mortgage advisors – like Save On Mortgages, offering expert advice at no cost.

Common misconceptions about mortgages for self-employed Individuals

Some myths surrounding self-employed mortgages include:

• "You need perfect credit to qualify" – while a good credit score helps, there are options for those with less-than-perfect credit
• "You need three years of accounts" – Some lenders accept just one year of trading history
• "High deposits are always required" – some lenders offer mortgages with deposits as low as 5-10%
• "Mortgage applications are too difficult" – with expert advice, the process can be straightforward.