Self-Employed Mortgages

How much can I borrow if I'm self-employed?

Lenders vary considerably in how they calculate an income figure for self-employed mortgage applicants. Some may use your income from the previous year, while others use an average of your income from the past 2 or 3 years. On top of this everyone’s application is different, meaning it can be hard to give you an exact idea of what you could borrow.

However, as a guide most lenders will typically allow you to borrow between 4 and 5 times you yearly income. This is providing you demonstrate good affordability, through things like consistent income and a clean credit history.

For example, if you make £35,000 annually you could potentially borrow £175,000, as this would be 5 times your income. This could be increased if you apply with a partner, as both incomes will be considered.

Each lender will have different criteria for considering direct income, salary, limited company director dividends, and retained profits. They employ various methods for income calculation, but once they establish it, standard lender criteria determine your borrowing limit.

To get a more accurate idea of what you could borrow, why not give our free self-employed mortgage calculator a go!

Do self-employed applicants pay higher interest rates?

No, self-employed people typically do not face higher interest rates when applying for a mortgage. Instead, just like with any applicant, lenders prioritise the applicant’s ability to repay the loan, regardless of employment type. And if they deem you to be a risky borrower, they may impose certain conditions, like a higher than average interest rate.

However, assessing income for the self-employed can be more complex because of variable earnings, which could lead to you paying a higher interest rate if your income is not presented correctly. Therefore, in order to secure a competitive interest rate you should:

• Strengthen your business case with signed contracts, verified accounts, and evidence of orders.
• Save for a larger deposit to reduce the risk a lender is exposed to.
• Maintain a clean credit history, checking for errors and using a credit card responsibly to build credit.

Presenting a strong application by doing your best to follow these steps, you are more likely to secure a favourable mortgage rate.