Getting a mortgage in London can be challenging, especially if you’re self-employed. Lenders often scrutinize business owners more closely than salaried employees, which can make the process feel daunting. However, with the right approach, securing a mortgage doesn’t have to be a struggle. This guide will walk you through everything you need to know to boost your chances of approval and get the best deal possible.
Understanding Self-Employed Mortgage Applications
If you’re a business owner, lenders classify you as self-employed. The main types of self-employed applicants are:
- Sole Traders – Individuals who run their business as individuals and declare their profits as personal income.
- Company Directors – Owners of limited companies who take a salary and/or dividends from their business.
- Partners – Individuals in a business partnership, where income is usually based on their share of the business’s profits.
Understanding which category you fall into is crucial, as lenders assess income differently for each type.
How Many Years of Accounts Do You Need?
Most lenders require a minimum of one year of trading history, but the majority prefer two years of accounts. While some lenders previously asked for three years, this is now less common. The more financial history you can provide, the better your chances of securing a mortgage at a competitive rate.
How Lenders Assess Your Income?
The way lenders calculate your income depends on your business structure:
- Sole Traders & Partnerships – Most lenders use the average net profit over the last two years. If your income is decreasing, some may only consider the most recent year.
- Limited Company Directors – Traditionally, lenders look at salary plus dividends. However, some lenders now consider salary plus a share of net profit, which can be beneficial if you retain earnings in the business.
- Fluctuating Income – If your income varies significantly, some lenders will still use an average of the last two years, while others may base their decision solely on the latest year. If your latest year is higher than previous years, working with a specialist broker can help you find lenders that consider the most favourable figures.
How Much Can You Borrow?
Lenders typically offer 4.5 to 5.5 times your annual income. However, securing a mortgage at the higher end of this range is usually reserved for individuals with higher earnings, strong credit histories, and low financial commitments. If your income is structured in a tax-efficient way, this could impact how much you can borrow, making lender selection even more critical.
How to Improve Your Mortgage Chances?
To give yourself the best chance of securing a mortgage, follow these key steps:
- Work with a Specialist Mortgage Broker – Lenders have different criteria for self-employed applicants. A mortgage broker specializing in business owners, such as Strive Mortgages or The Mortgage Pod, can match you with lenders that best suit your circumstances.
- Keep Your Accounts in Order – Lenders prefer transparent, well-managed finances. Ensure your business and personal accounts are well-organized, with a steady income flow and minimal unexplained cash withdrawals.
- Avoid Excessive Tax Deductions – While minimizing tax liabilities is common for business owners, declaring a higher income can improve your borrowing power. Speak to an accountant about balancing tax efficiency with mortgage affordability.
- Maintain a Good Credit Score – Pay bills on time, avoid maxing out credit cards, and check your credit report for any errors that could harm your application.
- Prepare Your Documents Early – Most lenders will require:
- Last 1-2 years’ tax calculations and tax year overviews (SA302s)
- Limited company accounts (if applicable)
- Three to six months of business and personal bank statements
- Proof of ID and address
Summary
Getting a mortgage as a London business owner requires careful preparation, but it’s entirely achievable with the right strategy. Lenders assess self-employed applicants differently, so understanding how your income is calculated and working with a specialist broker can make all the difference. By maintaining good financial records, keeping your credit in check, and choosing the right lender, you can secure a mortgage that suits your needs, allowing you to get on the property ladder or expand your portfolio with confidence.
For tailored advice, consider speaking to an expert broker specializing in self-employed applicants to ensure you get the best deal available.
