Ultimately, all you need is to prove to a lender that you are a safe investment. Then you'll be able to get a self-employed mortgage rate that you are sure you can afford. However, there’s no specific mortgage designed for self-employed people.

Initially, there used to be ‘self-certification mortgages’ or ‘self-certs’, which were designed for the self-employed. These types of mortgages allowed lenders to self-certify how much income they earned in a given year without providing evidence.

After the 2007-2008 credit crunch, the Financial Conduct Authority (FCA) began cracking down on self-certify mortgages, and completely banned them in 2014 due to concerns that lenders were supplying mortgages they couldn’t afford.

While the definition might vary from one lender to another, you’re typically considered self-employed if you own 20% or more of a business and are involved in the day-to-day running of that business. This means you work for yourself and are not an employee working for an employer. You might be a freelancer, contractor, sole trader, or company director. It doesn't matter which, so long as you own a stake in a business that's your main source of income.

Note: Lenders will look at your net profit (if you are a sole trader) or your salary plus dividends (if you are a company director) to determine how much they can lend to you.

There are three main types of self-employment – the one that applies to you will determine how the lender assesses your self-employed mortgage application.

If you are a sole trader, then you work on your own and for yourself. There's no one else to consider, and this means that once you've paid tax, you keep all the profits. So, firstly, you’ll use self-assessment to declare your income – which is a requirement every year. HMRC then uses this to calculate your tax. Once you – or your accountant – have done this, you need to request a SA302 form. This will show your exact income and what tax you pay on it. Lenders can then use this figure to determine your mortgage offer.

A partnership is where you work with someone else. Perhaps you own half of the company and your business partner owns the other half. If this is the case, the mortgage lender won't look at it as a whole. They will only look at your individual profits.

When you are self-employed, you have the option to set up as a limited company. This means you'll have your business accounts and personal accounts separate to each other. You are likely to be the director of the company and therefore pay yourself a salary and dividends rather than taking the whole profit. Lenders will take all this into account. They will also consider profits in the business if you own more than 20% of the shares in the company.

Freelancing is the most common form of self-employment. It refers to any professional who provides a service based on their expertise and technical skills and isn’t contractually committed to any employer. They can work on multiple clients at a time and have multiple sources of income (although this may vary from one client to another).

In some cases, part-time workers like seasonal staff and alternative schedule workers may be classified as self-employed especially if they have other supplemental income jobs.

There are a few things you will need to be able to show when getting a mortgage while self-employed, these are:

• Two years' accounts: You can get your tax calculations and tax year overview for the last two years by printing an SA302 form from your HMRC online account. This shows lenders that you can afford to make payments. If you can only account for one year, you might find it harder to prove to a lender that you can meet their requirements.
• An accountant: Having a qualified, chartered accountant working on your accounts convinces lenders that the information provided is reliable, accurate, and meets self-employed mortgage requirements.
• Regular work: You’ll need to be able to show lenders that you have regular work coming in. Unlike those working for an employer, there is a chance you may go periods without work. If you can prove as self-employed borrower that your work is steady, you shouldn't have an issue.
• A deposit (5-20%, the higher, the better): Of course, you need your deposit before applying for a mortgage. It may be tempting to start the process as soon as you have the minimum. But it’s worth saving for a little longer if you can. It will be easier to get a self-employed mortgage, and you’ll get a better rate. This is particularly beneficial if you are self-employed so you can show lenders you're able to afford it.
• Good credit history: It’s important to have a good credit history whether you are self-employed or not. You can check your credit rating through a credit reference agency and look to improve it before applying for a self-employed mortgage. There are various ways to do this, including checking for errors and ensuring you’re on the electoral roll.

As well as showing the above, you’ll need to expand on each as proof that you can afford to make payments and that your finances are in good shape. It’s also worth showing that you can save – so that if you have a period with no work, you can use your savings to make payments. You’ll also need to provide:

• Passport
• Driving license
• Council tax bill
• Utility bills dated within three months
• Evidence of any savings accounts
• Proof of retainer profits (for a company director) or dividend payments
• Proof of upcoming contracts
• Six months’ worth of bank statements

This will prove your identity and your current living arrangements, as well as showing how you are spending your money.

The maximum self-employed home loan you can borrow may vary from one lender to another. Lenders will typically apply an income multiple to the average of your earnings over a period of two or three years. Keep in mind that this income may be calculated differently depending on what type of self-employed trader you are.

Most lenders usually allow you to borrow up to 95% of the property’s value, or up to 4.5 times your salary. There are some lenders who can offer up to five times your salary, but most prefer to settle on a 3.5 multiple for self-employed applicants.

Find out more about improving your credit score with our Know How blog.