How lenders really assess sole traders, company directors and contractors, how many years of accounts you actually need, and the avoidable mistakes that quietly shrink what you can borrow.
Written by Urvashi Mandalia, independent mortgage & protection adviser (20+ years, FCA-regulated) · Last reviewed
Being self-employed does not mean you can't get a mortgage. It means your income takes more explaining, and the gap between the right lender and the wrong one is far bigger than it is for someone on a salary.
Most lenders want two years of figures. A useful handful will lend on one. Deposit requirements are exactly the same as for employed applicants, and so are the interest rates: there is no "self-employed premium" on pricing. What varies wildly is how much of your income each lender is prepared to count, and that's where applications are won and lost.
Lenders work from the net profit declared on your Self Assessment returns, evidenced by SA302s and Tax Year Overviews from HMRC. Rising profits are usually averaged over two years; if the latest year is lower, most lenders use the lower figure.
The standard assessment is salary plus dividends. But if you deliberately leave profit in the company, that standard approach undersells you badly. A minority of lenders assess salary plus your share of the company's net profit instead, which can transform the numbers.
Some lenders annualise your day rate rather than relying on accounts: typically day rate × 5 days × 46 to 48 weeks. If you contract in the same line of work you used to be employed in, a few will consider you with very little self-employed history at all.
You're assessed on your share of the partnership's net profit, evidenced the same way as a sole trader. The same averaging rules generally apply.
A company director pays herself a £12,570 salary and £30,000 in dividends, leaving the rest of her £60,000 net profit in the business.
A salary-plus-dividends lender sees income of £42,570, which at a typical 4.5× multiple supports roughly £191,000 of borrowing.
A salary-plus-net-profit lender sees £72,570, supporting roughly £326,000. Same person, same company, same year. The difference is which lender read the accounts.
The most common thing self-employed people believe is that they need three years of accounts. That standard is long gone. Two years satisfies most of the market, and one year is enough for a worthwhile minority of lenders, particularly where you've moved into contracting or self-employment within the same trade you were employed in.
What lenders are really looking for with limited history is sustainability: evidence that the latest year isn't a one-off. Same industry, a pipeline of work, a sensible year-end profile. If you've genuinely just started a brand-new venture with no track record, most lenders will want to see that first year's figures before anything is possible, and the honest advice is sometimes to wait.
The last two or three years, downloaded from your HMRC online account. These are the backbone of almost every self-employed application.
For limited companies, the last two years of full accounts, ideally prepared by a qualified accountant. Filed and finalised, not drafts.
Typically three months of personal statements and three months of business statements. Lenders read these more carefully for self-employed applicants, so know what's in them.
Some lenders verify figures directly with your accountant or ask for an accountant's certificate. Warn them it's coming and applications move faster.
Paying yourself as little as possible is excellent tax planning and terrible mortgage planning. If a purchase is 12 to 24 months away, talk to your accountant about the trade-off now, not after a lender says no.
If your latest, stronger year is finished but not yet filed, most lenders can't use it. Sometimes waiting six weeks for the accounts to be finalised adds tens of thousands to what you can borrow.
A big equipment purchase or write-down can crater one year's declared profit. Some lenders will accept a well-evidenced explanation; most won't unless it's presented properly up front.
Applying to your own bank "because they know you" and getting declined leaves a mark that makes the next application harder. Going to the right lender first is the whole game for self-employed borrowers.
It's not a legal requirement, but it genuinely widens your options. Several lenders want accounts prepared by a qualified or chartered accountant, and some will ask them to complete an accountant's certificate. If you file your own returns, you can still get a mortgage; the pool of lenders is just smaller.
An SA302 is HMRC's summary of the income you declared on your Self Assessment tax return. Lenders usually ask for SA302s alongside the matching Tax Year Overviews for the last two or three years. You can download both from your HMRC online account in a few minutes, or your accountant can supply them.
Not necessarily. Where income is rising, most lenders average the last two years. Where the latest year is lower, many will work from the lower figure rather than the average, and a good broker will present the reason for the dip up front. A one-off dip with a clear explanation is workable; a steady decline is harder and needs the right lender.
Yes. On a joint application, lenders assess both incomes together, so a partner with steady employed income can do a lot of the heavy lifting while your self-employed income tops up the borrowing. This is often the practical route for people early in their self-employment.
Three years of accounts is a myth. The right lender for your history matters more than the length of it.
Salary plus dividends versus salary plus net profit can be a six-figure difference in borrowing for the same person.
Get the paperwork lined up, time it after your accounts are filed, and go to the right lender first time.
Your home may be repossessed if you do not keep up repayments on your mortgage. This guide is general information, not personal mortgage advice. For advice on your specific situation, book a free chat.
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