Self-employed mortgages
Self-employment is not one category to a lender — a sole trader, a partner and a company director are each assessed differently, from different documents. Knowing which set of figures should be in front of an underwriter is most of the work, and it is where the borrowing figure is won or lost.
Three structures, three assessments
A sole trader is generally assessed on net profit from the tax calculation — the figure after allowable expenses. A partner is assessed on their share of partnership profit. A company director is the complicated one: most lenders use salary plus dividends drawn, while a smaller group will use salary plus a share of retained profit.
That last distinction is where the largest sums move. A director who draws modestly for tax efficiency looks like a small earner on the common basis and a substantial one on the retained-profit basis, from identical accounts. Put your own figures through the retained profit calculator and the gap is usually the answer to why a high-street quote felt wrong.
What lenders accept as evidence
Typically the last two years of tax calculations and tax year overviews for a sole trader or partner, and two years of accounts for a company, though the number of years required varies and is not the fixed rule it is often presented as. Many lenders will work from one year, and some will assess a day-rate contractor from the contract itself without accounts at all.
An accountant's reference frequently helps, particularly where the trading period is short or the figures need context. What matters most is consistency: your accounts, tax calculations and bank statements should tell the same story, and any discrepancy should be explained before an underwriter finds it. See mortgages without an SA302 for the evidence question in detail.
The tax efficiency trap
There is a genuine tension nobody warns the newly self-employed about. Your accountant's job is to reduce your taxable profit; a lender's assessment is usually built on that same reduced figure. Do the first job well and you make the second harder — entirely legitimately, and entirely unhelpfully.
This is not an argument for paying more tax. It is an argument for choosing a lender whose assessment reflects what you actually earn, and for timing: if a purchase is coming, it is worth a conversation with your accountant about how the next set of figures will read, because the accounts filed this year are the ones a lender will see next year.
Where contracting differs from ordinary self-employment
If you are paid a day or hourly rate against a contract, you may not need the accounts route at all. Contract-based underwriting assesses the engagement in front of you and annualises the gross day rate, which sidesteps the trading-history question almost entirely.
That route is frequently more generous than an accounts-based assessment and is available from a meaningful number of lenders. It is the single biggest reason a contractor should not accept a high-street answer built on a tax return — and the reason we start every case by establishing which basis produces the better figure for you.
Self-employed, answered
How many years of accounts do I need?+
Fewer than the common assumption. Two years is a frequent requirement but far from universal — a meaningful number of lenders work from one year, and day-rate contractors can often be assessed from the current contract instead of accounts. The three-year figure people repeat is the most conservative end of the market, not the market.
Do lenders use profit before or after tax?+
It varies by lender and by structure, which is one reason quotes differ so widely. For sole traders it is usually the net profit figure from the tax calculation. For directors, whether a lender counts drawn income or a share of company profit makes a far larger difference than the before-or-after-tax question.
Can I get a mortgage in my first year of self-employment?+
It is possible, particularly for contractors assessed on a contract rather than accounts, and for those continuing established experience in the same field. A first year with no relevant history behind it is harder. Continuity is what carries a short trading period, so make it explicit in the application.
Will I be offered worse rates for being self-employed?+
There is no self-employed surcharge. Pricing follows loan-to-value, credit profile and product choice, so a well-presented self-employed case competes for the same deals as an employed one. What differs is how much you can borrow, which depends entirely on which income basis the lender applies.