Mistake 1: Reducing taxable income too far
Lenders usually base borrowing on the income you declare to HMRC. Minimising taxable income can save tax, but it can also shrink the amount you can borrow. Many self-employed people are surprised by how low their mortgage figure is.
If you plan to buy or remortgage in the next year or two, speak to your accountant about the trade-off. Company directors may be able to use salary plus share of net profit with some lenders, rather than salary and dividends alone. Our self-employed mortgage income guide explains how lenders calculate income.
Large one-off expenses can also distort your figures. A big equipment purchase or pension contribution in your latest year may reduce declared profit. Your accountant can explain the effect, and a broker can look for lenders that take a longer view.
Mistake 2: Applying too soon after starting out
Many lenders want two years of trading history. Some accept one year of accounts, especially if you work in the same field as before. Applying too early, to the wrong lender, may lead to a decline and a search on your credit file.
If you have just moved from employment to self-employment, your past work matters. A contractor who stays in the same industry is often viewed more favourably. Some lenders assess contractors on an annualised day rate, with a contract in place.
If you are close to the two-year mark, it may be worth waiting a few months. A second full year of accounts can open up more lenders and better terms. A broker can tell you whether waiting is likely to make a real difference in your case.
Mistake 3: Not having the right documents ready
Self-employed applications need more paperwork than employed ones. Missing or late documents are a common cause of delay. Most lenders ask for:
- SA302 tax calculations and matching tax year overviews from HMRC, usually for two years.
- Full company accounts for limited company directors, often prepared by a qualified accountant.
- Personal and sometimes business bank statements.
- An accountant's reference or certificate, with some lenders.
- Evidence of current trading, such as contracts or recent management accounts.
File your tax return early if your latest year shows higher income. Lenders can then use the most recent figures. Our mortgage documents checklist has the full list.
Mistake 4: Mixing personal and business finances
Lenders read your bank statements closely. Business payments going through a personal account, or personal spending from a business account, can make income hard to verify. Unexplained transfers and frequent overdraft use may raise questions.
Keep separate accounts and pay yourself regularly. Avoid gambling transactions, missed payments and payday loans in the months before applying. Check your credit file with the main agencies and correct any errors. Small fixes can make your application clearer.
If you use one account for everything, be ready to explain the main transactions. Lenders do not expect perfection, but they do expect your income and spending to make sense. Clean, consistent statements make an underwriter's job easier.
Mistake 5: Going to the wrong lender first
Lenders treat self-employed income very differently. One may use your latest year's profit, another a two-year average. Some count retained profit in a limited company. Others take only salary and dividends. The same person can get very different offers.
Going straight to your bank, or applying to several lenders yourself, can waste time and leave multiple searches on your file. A whole-of-market broker can identify lenders whose rules fit your income before you apply. OMB regularly works with company directors, contractors, sole traders and partners in London and across the UK.
What else should self-employed borrowers watch?
Keep enough cash for your tax bill. Lenders may ask about tax due, and an unpaid bill can affect affordability. Avoid taking on new borrowing, such as car finance, before your application.
If your income has dipped for a clear reason, such as a one-off event, explain it. Some lenders will listen if there is a good story and recent figures show recovery. Self-employed borrowers have the same deposit options as employed buyers, often from 5% to 10%, but a larger deposit may widen choice.
Protection matters too. Self-employed people do not get sick pay from an employer, so income protection can help cover mortgage payments if you cannot work. Cover depends on underwriting and policy terms. See our self-employed mortgages page for how OMB helps.
The common thread is preparation. Six to twelve months of planning with your accountant and broker can make a real difference to what you can borrow.
Self-employed mortgagesMortgages for sole traders, company directors, contractors and partners with variable or complex income.
Explore self-employed mortgagesFrequently asked questions
How many years of accounts do I need for a self-employed mortgage?
Many lenders want two years of accounts or tax calculations. Some accept one year, especially if you stayed in the same line of work. Contractors may be assessed on their day rate with a contract in place. A broker can match your history to suitable lenders.
Do lenders use my salary and dividends or company profit?
It depends on the lender. Many use salary plus dividends. Some use salary plus your share of net profit, which can help if you retain profits in the company. The approach can make a large difference to how much you can borrow.
Can I get a mortgage with one year of self-employment?
Yes, some lenders consider one year of accounts or tax calculations, often if you were previously employed in the same field. You may need a larger deposit or face a narrower choice of lenders. Recent, strong figures help your case.
What is an SA302?
An SA302 is HMRC's tax calculation, showing your income and tax due for a tax year. Lenders usually ask for SA302s alongside matching tax year overviews. You can download both from your HMRC online account, or ask your accountant to provide them.
Should I file my tax return early before applying?
If your latest year shows higher income, filing early can help, because lenders can use the most recent figures. If income fell, a lender using an average may suit you better. Talk to your accountant and broker about timing. Timing can make a real difference.
Are self-employed mortgage rates higher?
Not necessarily. Self-employed borrowers can access the same mortgages as employed borrowers if they meet the lender's criteria. Rates depend more on your deposit, credit history and the lender than on self-employment itself. Specialist lenders may charge more for complex cases.
Important: This guide is general information, not personal advice. Rules, rates and lender criteria change; speak to an adviser about your circumstances. Your home may be repossessed if you do not keep up repayments on your mortgage.