Many aspiring homeowners in the UK are still under the misconception that being self-employed makes it near impossible to secure a mortgage.
And according to a survey by mortgage adviser Alexander Hall, over half of respondents were unaware that lenders often accept just two years of certified accounts or HMRC tax calculations from self-employed applicants — and some even consider applicants with only a single year’s financial documentation.
The misconception stems from perceptions that self-employment incomes are irregular or unreliable income, coupled with the belief that lenders impose excessively strict scrutiny, making mortgage approval seem unattainable.
This outdated belief can deter valuable potential buyers from even initiating their property purchase journey, but recent research and industry developments suggest that the landscape has evolved markedly, with lenders increasingly recognising the diversity of income streams, including those of self-employed applicants.
In fact, according to Shawbrook’s recent Home-A-Loan report, the proportion of self-employed people rejected for a mortgage has fallen dramatically from 45% a year ago to 24% this year.
How lenders assess self-employed applicants
Contrary to common fears, the mortgage industry has adapted to better accommodate self-employed individuals. Lenders usually require proof of income over a period — typically one or two years — via:
- Certified or audited accounts by a qualified accountant (most often two years, but sometimes one)
- HMRC Self-Assessment tax calculations
- Bank statements illustrating income and expenditure flows
They often adopt an income averaging approach over these years. If income fluctuates, rising earnings can bolster applications, whereas declining income may impede them.
According to Experian, if your earnings vary dramatically, lenders may take your lowest earning year as a baseline for what you can afford to borrow. Some lenders may be willing to take an annualised figure from your day rate.
Supplementary evidence, like ongoing contract confirmations or invoice histories, can further strengthen applications.
Range of mortgage products available
The market has become increasingly welcoming to self-employed borrowers:
Multiple income streams: Applicants with mixed income — for example, part employment alongside self-employment—can often have these combined for a favourable borrowing assessment.
Major banks & specialist lenders: Most high-street banks, along with specialist mortgage providers, offer tailored products that recognise the realities of self-employment income.
Flexible underwriting: Many now incorporate manual or bespoke affordability assessments, moving beyond rigid income multiples.
Minimal documentation requirements: Some lenders accept just one year’s accounts or tax returns, especially where other financial factors — credit history, deposit size — are favourable.
Challenges and how to overcome them
Though the industry has made notable progress, hurdles remain. According to Shawbrook, 34% of applicants are still being turned down due to insufficient credit scores, and 30% because lenders view their income as too uncertain.
This cautious approach by lenders contrasts with the reality that 79% of surveyed self-employed individuals reported never missing payments.
Credit history: Any adverse credit issues can impact approval, but specialist lenders may still consider applications with recent County Court Judgements or Individual Voluntary Arrangements regarding debts if fully disclosed.
Document preparation: Gathering and certifying financial evidence can be daunting, requiring diligent organisation.
Income volatility: Fluctuating profits may limit borrowing capacity due to lender conservatism.
Higher deposits & rates: Some lenders compensate for perceived increased risk with larger deposits or marginally higher interest rates.
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Market evolution and industry insights
The market continuously evolves, driven by factors like the rise of gig economy workers and freelancers — trends accelerated by external events such as the COVID-19 pandemic — and data shows that self-employed individuals now constitute a significant share of new mortgage approvals.
The Together Residential Property Market Report projects a 67% growth in the self-employed mortgage market over the next four years, potentially reaching £34.8 billion by 2029.
This growth correlates with a rise in the self-employed workforce, which increased from 3.2 million to 4.3 million over the last two decades.
However, even with market expansion, around 22% of rejected applicants are still categorised as ‘non-standard’ borrowers, largely because of their self-employed status and related income irregularities.
John Barker, chief executive of personal finance at Together, said: ‘As more and more people find themselves to be a sole trader, freelancer, side-hustler or majority shareholder a more inclusive approach is required from the financial services industry where common-sense is applied to lending with applications judged on merit – looking at the whole picture, not just your credit score or loan-to-income ratio.’
Yet, the myth that self-employed individuals have no mortgage prospects in the UK is increasingly outdated. The market’s progression — with more flexible criteria, tailored products, and expert advisory services — means that self-employment is no longer an insurmountable barrier.
Prospective buyers should leverage these developments, prepare their financial documentation diligently, and consult experienced advisers to optimise their chances of mortgage approval.
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