Since the COVID-19 pandemic, the UK has seen a significant rise in the number of small business owners and those in self-employment, with many drawn to the flexibility and independence that this way of working offers.
Buying a home as a self-employed person can feel more daunting than applying for a mortgage in traditional employment. However, the mortgage application process itself is largely the same, with the key differences involving how income is evidenced, assessed and documented by lenders.
It is common for self-employed income to fluctuate and be structured in different ways. Due to this lenders often require additional information to confirm affordability and long-term sustainability. Understanding these requirements and preparing for them early can help reduce uncertainty and improve your chances of approval.
In this article, we explain who is treated as self-employed, what documentation may be required depending on how you trade, and practical steps you can take to strengthen your mortgage application.
Who is treated as self-employed?
You are generally considered self-employed if you work for yourself rather than being employed by a company and paid a regular salary through PAYE. This includes people who run their own business, trade independently, or provide services to clients on a contract basis.
There are several forms of self-employment, and most individuals will typically fall into one of the following categories:
Sole traders
A sole trader is a person who runs their own business as an individual, rather than through a company or partnership, and is personally responsible for it. They keep all their profits after tax, with income typically being paid directly to the individual and declared through a Self-Assessment tax return.
Being a sole trader is not a specific job, but rather a way of working. There are many types of work which can be done as a sole trader, such as tradespeople (e.g. electricians, plumbers and carpenters), freelancers, consultants, creatives, tutors, and people offering personal or domestic services.
They may work from home or with clients directly, use their own name or a business name, and usually manage their own taxes and finances themselves.
Partnerships
A partnership involves two or more people running a business together and sharing responsibility for its profits and losses. Each partner is taxed individually on their share of the income and submits a Self-Assessment tax return, rather than receiving a traditional salary.
People who may be considered to be working under a partnership include:
- Two or more plumbers, builders, or electricians running a business together.
- Accountants, solicitors, or consultants who jointly own and manage a practice.
- Restaurant or cafe owners operating a business together.
- Doctors, dentists, or other healthcare professionals sharing a clinic.
- Family members (e.g. siblings or spouses) jointly running a business together.
Limited company directors (25% or more shareholding)
A limited company director is someone who works for themselves but trades through their own company rather than as an individual. These individuals are typically involved in running the company and will influence major decisions.
As the business is a limited company, it is legally separate from the director, meaning the company is responsible for its own debts and pays the director through a salary and potentially, dividends (money from the company’s profits paid to its owners).
This can include people such as business owners, co-founders, or senior managers who have set up a company together and hold substantial shares, with the types of businesses varying across different industries, for example shops, restaurants, construction firms and marketing agencies (alongside more).
Most lenders will treat directors with 25% or more shareholding as self-employed, whereas directors with less than 25% shareholding are often assessed as employed, although this varies by lender.
Contractors
A contractor is someone who works independently, offering their services to clients on a project, short-term or ongoing basis. They are not employed by a single company and tend to be paid per project, day or contract.
These individuals may work in areas such as construction, IT, engineering, consultancy, healthcare, or creative industries. They often work for multiple clients and are responsible for managing their own taxes and finances.
Contractors may also operate as sole traders, through a partnership, or through their own limited company, but unlike employees, they are not usually entitled to benefits such as sick pay or holiday pay, but have more control over how and when they work.
What documents do self-employed applicants need for a mortgage application?
Preparation is particularly important for self-employed applicants, as lenders require more detailed documentation to evidence income and assess affordability. The exact requirements will vary by lender and your circumstances, but will typically include:
Sole Trader or Partnership:
- The last two years’ worth of Tax Year Overviews.
- The last two years’ worth of tax calculations, evidenced by either SA302 forms, print outs from the HMRC website, or accountant-prepared computations submitted to HMRC.
The most recent year of documentation must usually be dated within the last 18 months.
Limited company director:
- The last two years of finalised company accounts (the most recent year must be dated within the last 18 months).
- Evidence of income for the last two years, with lenders typically using either:
- An average of the last two year’s salary and dividends.
- An average of the last two year’s salary and share of net profit.
This income is usually confirmed via HMRC documentation or an accountant’s certificate.
If there are multiple directors and the financial accounts do not confirm the distribution of salary to each director, lenders may also request:
- Each directors last two years’ P60s.
- Each directors last two years’ SA302s and Tax Year Overviews.
Contractors:
- Two years’ evidence of regular income and account statements, where lenders will either use the lower of the most recent year or a two-year average.
- Evidence of ongoing or future work, such as contracts.
Can I get a mortgage if I have been trading for less than two years?
If you have been trading for less than two years, some lenders will consider applications with short trading histories, provided you are able to supply additional evidence, such as:
- A minimum of one year’s finalised financial accounts (limited companies).
- A letter from the Senior Partner, Accountant, or Practice Manager that confirms the partnership is well established, the date the applicant became a partner, and their expected income for the next 12 months (partnership).
- One years’ tax calculations and Tax Year Overviews (sole traders or partnership).
- The latest three months of business bank statements, dated within 35 days of the application date.
Some lenders may also accept income that includes Self-Employed Income Support Scheme (SEISS) grant payments (subject to criteria).
Our mortgage advisers can help review these documents with you to identify any potential issues early on and guide you towards suitable lenders that may accept shorter trading histories.
Tips on how to prepare for a mortgage application as a self-employed applicant
Regardless of how you are self-employed, there are several things you can do to prepare for your application and help improve your chances of approval.
- Keep your business finances organised and up to date
For self-employed individuals it is essential to ensure that your accounts, tax returns and bookkeeping are accurate and up to date.
Lenders rely heavily on SA302s, Tax Year Overviews and business accounts to assess your income stability and affordability, therefore well-maintained records will help demonstrate consistency and reduce any potential delays.
As of April 2026, sole traders and landlords with an annual income upwards of £50,000 will need to comply with the new Making Tax Digital (MTD) regulations for tax self-assessment. Additionally, this will expand even further from April 2027 to self-employed persons and landlords earning over £30,000.
At Cooper Associates Accountancy, our team of expert advisers are on hand to guide you through the process of MTD and can help ensure your business stays compliant, whilst providing you with support regarding any concerns you may have.
- Avoid large expenditure before applying
In addition to standard personal affordability checks, lenders also examine business outgoings for self-employed applicants. Large purchases or irregular spending, either personally or through a business, can have a significant impact on your affordability assessments.
Where possible, it is best to avoid large expenditures and keep spending stable in the months leading up to your application, which may improve your chances of approval.
- Build a strong credit history
A strong and well-managed credit history reassures lenders that you can responsibly manage financial commitments. This is particularly important for self-employed individuals whose income may fluctuate.
There are several ways to improve your credit profile, including:
- Paying bills on time.
- Reducing any outstanding balances.
- Avoiding new credit applications.
- Registering for the electoral roll.
- Consider saving for a larger deposit
A larger deposit lowers your Loan-to-Value ratio, which can strengthen your application, help you appear lower risk to lenders and give you access to better rates.
This can be particularly beneficial for self-employed applicants with fluctuating incomes or shorter trading histories, who may appear higher risk to lenders.
- Reduce any existing debt
Reducing outstanding debts such as credit cards, loans or over drafts can be beneficial as this will help improve your affordability by lowering your monthly outgoings and demonstrating responsible financial management.
- Keep evidence of income and ongoing work
If your income fluctuates, retaining contracts, invoices or confirmation of ongoing work can help demonstrate income sustainability if lenders require additional reassurance.
What if I have complex tax deductions?
It is common for self-employed individuals to utilise allowable expenses to reduce taxable income. Whilst this is beneficial for tax efficiency, it can impact borrowing power as lenders rely on declared profit to assess affordability.
What you can do to prepare:
- Review upcoming tax filings if you plan to apply soon.
- Ensure your accounts clearly show profitability and business health.
- Seek lenders who consider acceptance of share of net profits.
- Provide additional documentation to support the strength of your income.
Cooper Associates Accountancy can help by providing tailored advice for self-employed individuals, helping to ensure financial records, accounts and tax documentation are accurate and mortgage-ready.
How can Cooper Associates Mortgages help?
Our award-winning mortgage advisers have extensive experience supporting self-employed clients, working to understand how different lenders assess self-employed income and guiding clients towards lenders best suited to their trading history and financial position.
Our advice is bespoke, holistic and fee-free, with a focus on helping each client secure a mortgage aligned with their individual needs.
Get in touch today to discuss how our advisers can help you secure your ideal mortgage.
