Common Challenges in Getting a Mortgage When You’re Self-Employed

You’ve gone self-employed. You’ve ditched office supervisors and avoided workplace politics and have ultimate freedom to create your own path. Feels good, doesn’t it? And now—finally—you’re ready to buy a home.

At this point the bank gives you their skeptical face—As though you had just told them your income comes from selling magic beans. The freedom you fought so hard for now feels like a heavy chain around your ankle.

Self employed people can get a mortgage but the process is tough. The mortgage application process is full of bureaucratic hurdles and confusing requirements that are designed for people who work a 9-5 job. Let me explain the hidden factors at play and how you can overcome them.

Why Banks Treat You Like a Wild Card

Mortgage lenders love predictability. Banks prefer to review organized payslips along with consistent tax records and a financial history that follows a pattern. As an employed person your salary arrives regularly so the bank can anticipate income flow. It’s boring but it’s safe.

Now enter you—the self employed. Your income fluctuates. One year you might have a great income followed by a bad year and another high income year. The info in your accounts tells a great story but it doesn’t fit the mortgage world’s tick box approach.

They start asking for more proof. More paperwork. There needs to be more proof you won’t chuck it all in and start an organic llama farm in the countryside.

The Proof Problem

Luckily being self employed means you have to keep a paper trail that would impress Sherlock Holmes.

Financial institutions generally require two years of financial account statements. Sometimes three. They’ll ask for your SA302s from HMRC to review your tax year summaries along with your business bank statements and they might ask for a letter from your accountant. Got all that? Good. Now they’ll scrutinise every single number.

Earnings up and down? They might only count your lowest year. If you pay yourself more dividends in one year and less in the next it will affect your position. That could work against you. Claiming expenses to be tax efficient? Lenders don’t like it when they see your official income reduced. It’s a Catch 22: Either reduce your tax liability or improve your mortgage credentials.

Struggling to Find a Lender? Here’s What to Do

Work With a Specialist Mortgage Broker

Working with a specialist mortgage broker makes a big difference when self employed people struggle to get a mortgage. Specialist brokers know which lenders offer more flexible mortgage terms for self employed applicants whilst high street banks stick to tick box criteria.

These brokers have relationships with lenders who understand self employment. Mortgage providers who accept retained profits and variable income and accept only one year of accounts can be found through these specialists.

Look Beyond the High Street

Several lenders don’t view self employment as a negative. When your main high street bank says no consider going to alternative lenders. Smaller building societies and online mortgage providers such as When the Bank Says No and specialist banks use personalized approaches instead of tick box criteria.

Some lenders offer specialized mortgage options for self employed people, freelancers and company directors. Finding the right lender requires knowing where to look and a good broker can help with that process.

Deposits—Why You’ll Likely Need a Bigger One

Heard about those dreamy 5% deposit deals? The 5% deposit mortgage deals are for PAYE waged people. Self employed people need higher deposits from lenders who want 10%, 15% or even 20% stakes. Why? Self employed borrowers are a higher risk to lenders.

The system seems unfair when you have the financial means to make repayments. The size of your deposit directly affects your success rate. A bigger deposit gives lenders confidence and better interest rates for you and reduces your overall debt over time.

Saving for a bigger deposit whilst running your own business is a tricky task. When you’re not on a fixed salary you can’t automatically save a percentage of your pay each month and consider it done. Your income fluctuates from month to month and some months yield less money than others.

What methods can you use to save for your deposit whilst keeping your sanity?

1. Create a separate savings account and make sure to use it regularly.

It sounds simple but this works. Separating your savings from your spending money prevents you from using the deposit funds when unexpected expenses arise. Choose a high interest savings account or a Lifetime ISA if you qualify.

2. Set a ‘Minimum Savings Goal’ Each Month

There may be months when you earn more than you planned. Other months, not so much. Set a minimum savings target that you can reach even in slow months rather than a fixed savings amount. In months when you earn more than usual add a little to your savings.

3. Cut Back on Non-Essentials

Yeah, yeah, no one likes hearing this. Small savings add up to big financial benefits. You can save more for your deposit by swapping takeaways with home-cooked meals and minimising unused subscriptions and better bill rates.

4. Stash Unexpected Windfalls

Tax rebate? Side hustle paying off? That random refund you forgot about? Don’t use unexpected windfalls as discretionary funds and instead allocate them to your deposit savings. You’ll never miss money you never intended to spend anyway.

5. Automate Your Savings

An automatic transfer to your savings each month will make saving easier when your income is stable. A little savings each time adds up over time without needing your attention.

Saving a big deposit isn’t easy but think of it this way: The money you save now reduces your future debt obligations. Your mortgage terms improve with more savings because lower interest rates mean lower monthly payments which benefits you.

How to Make Yourself Mortgage-Ready

Stop throwing your laptop out the window because good news awaits. You can get a mortgage with planning. Here’s what helps:

• Keep your financial records tidy by hiring an accountant who will file accurately and prevent last minute rushes to get your financial data in order.
• To improve your credit score you need to pay off debts, avoid overdrafts and check your credit file for mistakes.
• Increase your initial deposit and you’ll be more likely to get a mortgage.
• A specialist broker who knows self employed mortgages can make all the difference because they know which lenders have flexible policies and can help you avoid wasting time with those that will automatically reject your application.

Final Thoughts—You’ve Got This!

Being self-employed is tough with no easy answers. You shouldn’t feel trapped because the mortgage system wasn’t designed for self-employed people. You built something for yourself and now you’ll overcome the mortgage hurdle like you’ve done before.

Stay disciplined with your finances and find expert help to avoid the system. Your dream home is waiting.