The Complete Guide To Self-Employed Mortgages For First-Time Buyers

Our jargon-free guide to eligibility criteria, including deposit size, maximum borrowing amounts, income assessment and more.

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Graham Cox - Founder & Cemap Mortgage Advisor | SelfEmployedMortgageHub.com
Graham Cox
CeMAP Mortgage & CPSP Specialist Finance Advisor

For first-time buyers, understanding the criteria mortgage lenders use to assess your self-employed mortgage application is half the battle.

That's why we put together this in-depth mortgage guide to explain how income is assessed for self-employed borrowers, deposit size requirements, loan-to-income multiples and much more.

Is it difficult to get a first-time buyer mortgage if I'm self-employed.

Not necessarily, though in some ways, it can be trickier. For example, a self-employed person would need to show evidence of being self-employed for at least a year.  

But as long as you meet eligibility criteria, and can raise a sufficient deposit, getting a first-time buyer self-employed mortgage needn't be any more difficult than it would be for someone in full-time employment.

How do lenders define a first-time buyer?

Whilst it may seem like a silly question, the answer is actually quite nuanced.

A first time buyer is defined as someone who has never owned, or partially owned a home before, anywhere in the world.

Notice the use of owned and home.

If you've previously inherited a home from your parents, or been fortunate enough to have a property bought for you, you would still be classed as a first-time buyer. Even though you've never bought a property before.

In that sense, the term first-time buyer is a little misleading.

Neither will you qualify if you're buying your first BTL mortgage property.

And if you're buying with someone else, both of you need to fit the eligibility criteria for first-time buyers. If one of you doesn't, neither of you would qualify.

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The mortgage process explained

The mortgage process can seem confusing if you've not gone through it before. But in reality, it's quite straightforward. Here's how it works:

Completing the fact find

First, your mortgage broker will spend some time reviewing your Fact Find information with you. As the name suggests, a fact find is a deep dive into your personal and financial circumstances, as well as your mortgage preferences such as whether you want:

  • A capital repayment mortgage or interest-only
  • A fixed, tracker or discount mortgage rate
  • the ability to make overpayments
  • the payments to run into retirement

Sourcing a deal and getting a decision in principle (DIP)

With the fact find completed, and having reviewed your credit file, bank statements and other documentation, your advisor can then source the most suitable mortgage deal based on your needs and preferences.

After presenting an illustration of the sourced mortgage product to you, and assuming you're happy with it, the broker will go back to the lender to get a Decision in Principle or DIP for short.

You may also hear a DIP called an AIP or Agreement in Principle. It's one and the same.

The mortgage provider's DIP decision is automated and usually instantaneous. If the decision is Accept, you're all set to proceed to a full mortgage application.

Less straightforward cases might return a result of Refer. That means the DIP decision will be referred to the underwriter's lending team, and they usually come back with a decision in a day or two.

Your mortgage broker won't need all your documentation at this point but will need to know your earnings. Ideally for the last three years, if you've been trading that long.

A DIP is not a guarantee you'll get definitely get a mortgage offer. That comes later. But it does mean that based on the information provided,  the mortgage lender is happy to lend you the loan amount requested.

Most mortgage lenders only carry out what's called a soft search at the DIP stage. A soft search won't affect your credit score.

It's important to note a DIP is not tied to any particular property either, so you can get one before you've even found the home of your dreams!

Finding a property to buy

Next, it's the fun part, the property hunt!

Knowing how much you can likely borrow will allow you to make an offer on a property with confidence.

And with a DIP in place, you'll find many estate agents keen to talk to you, because it shows you're serious and have funding lined up.

Self-employed mortgage documentation

As soon as you've found the property you want, and your offer has been accepted, it's time to instruct your advisor to submit the formal mortgage application (FMA).  

It's now that every piece of relevant documentation and information needs to be collated.  

The financial documents required will depend on the lender and your business structure but typically include:

  • personal bank statements
  • business bank statements
  • tax calculations and tax year overview docs
  • credit report
  • proof of ID and address
  • business accounts (for limited companies)

Please note mortgage lenders won't accept a self-assessment tax return. Be sure to check out our mortgage documents checklist for a more info.

You'll also need to provide:

  • Your solicitor's contact details
  • The estate agent contact information (for the valuation)
  • Certified proof of ID and your current address
  • Your accountant's contact info (if requested by the lender)

The full mortgage application typically takes 4-6 weeks to be approved and a formal mortgage offer made, though it can take longer at busy times of the year.

Self-employed mortgage underwriting

Once the lender receives all the required documentation, the application is passed to the underwriting team.  This is where your application is risk-assessed based on the lender's self-employed mortagage criteria, documents examined and searches run.

The lender will carry out a hard search of your credit record. Having a good credit score will give you access to the best mortgage rates so it's worth checking well in advance of applying for a mortgage.

In the UK, the four main credit reference agencies (CRA) are Experian, Equifax, Transunion, and Crediva. Most lenders will search just their preferred CRA.

The property valuation and mortgage offer

Assuming all the assessments and checks are satisfactory, the lender will then instruct a qualified surveyor to carry out a mortgage valuation (sometimes referred to as a valuation survey) of the purchase property.

The lender will usually provide a valuation survey date. Sometimes, it's just a few days away, but during busy periods, it can be 2-3 weeks later. It all depends on how busy the surveyor is.

With some mortgage products, the bank or building society will charge the borrower a valuation fee. Others come with a free valuation. Either way, it's important to remember the valuation is for the lender's benefit, not yours.

As the mortgage loan is secured against the property you're buying, it's understandable for the lender to want to check the property is worth the amount it's being purchased for.

They may also want to physically inspect the property to ensure there are no issues that could affect its suitability as security.

Automated and desktop valuations

Depending on the type of property being valued, and the size of the mortgage being applied for, a surveyor may carry out what's known as a desktop valuation. The surveyor will run computer checks of the property and similar nearby properties that have sold recently.

Sometimes, the lender will calculate the property value using an Automated Valuation Model (AVM). It's similar to the desktop valuation but automated with software that checks historical prices and other data.

As there is no physical inspection carried out with either the desktop valuation or AVM,  the lender is taking on more risk.

For that reason, they tend to be reserved for mortgage applications with lower LTVs or properties on housing estates, where there are a large number of similar properties and sale transactions to compare against.

Physical valuations

Quite often, the lender instructs a qualified surveyor to visit and inspect the property. Surveyors typically produce a valuation report within a day or two of the booking date.

Once a satisfactory valuation has come in, your mortgage will be approved, and an offer document should arrive in the post within 2-3 working days. The lender will also send a copy to your solicitor and mortgage broker.

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How much can a first-time buyer borrow?

With self-employed mortgages, the vast majority of banks, building societies and specialist providers will lend a maximum of between 4.5 times and 5.5 x single or joint earnings.  

But it's important to remember that each provider will have it's own lending criteria and appetite for risk, so maximum borrowing amounts can vary enormously.

Higher multiples of 5-6 times earnings may be possible for higher earners or those in a professional role, such as an accountant, solicitor or architect.

How is my self-employed income assessed?

It all depends on your business structure. Here's a quick summary of the most common methods lenders use:

  • Sole traders - net profit
  • Limited company directors - salary and dividends or salary and net profit.
  • LLP equity partner - share of net profit
  • Contractor - 46 weeks x 5 x day rate

How much deposit will I need as a first-time buyer?

As little as 5%.  Right now, many mortgage lenders are happy to provide mortgage loans at 95% Loan-To-Value (LTV).  So, for example, on a £200,000 property purchase, you'd need a minimum of £10,000 deposit.

Typically, the 5% mortgage deals are only for house purchases.  If you're buying a flat or maisonette, expect to stump up a minimum of 10-20% deposit.

Our article about getting a self-employed mortgage with a 5% deposit has more information on the pros and cons of small deposit mortgages

What mortgage deals are available as a self-employed first-time buyer?

Most lenders have mortgage products specifically aimed at first-time buyers.

These usually have a slightly lower interest rate than the lenders equivalent product for people who own or have previously bought a property. The ftb product might also include incentives, like cashback or a free valuation.

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"Brilliant from start to finish. Graham managed to find a main high street lender who offered a brilliant rate. Would highly recommend."

Tracy Boyle - Google Business Review
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Do first time buyer's pay stamp duty?

As a first time buyer, there's no stamp duty land tax (SDLT) to pay on the first £425,000 if the property your purchasing costs no more than £625000.

A 5% stamp duty rate is applied on the portion between £425,000 and £625,000. So on a £525,000 home purchase, you'd pay £5000 stamp duty.

For any first-time purchase over £625,000, there's no stamp duty concession, and the standard rates of SDLT would apply.

So for example, if your first home cost £700000, the stamp duty land tax would be an eye-watering £22,500.

Can I use Help to Buy?

Not any more. The current Help to Buy: Equity Loan scheme finished in March 2023.  

The scheme was available to help first-time buyers purchase a new build home in England.

If you're not interested in a new build, there's also the Mortgage Guarantee Scheme which is still in place and can be used UK-wide. Learn more about both of the government backed mortgage schemes.

Can I get a first-time buyer mortgage if I have bad credit?

Yes, it's entirely possible to get a first-time buyer mortgage with bad credit.

Every lender's tolerance for risk is different, but most providers will lend to first-time buyers with at least some form of adverse credit history.

Some will only accept very mild bad credit, such as a couple of late payments on a mobile phone bill. Others are more flexible and will consider more severe adverse credit like CCJs, defaults, DMP, missed mortgage payments, and even ex-bankruptcy.

The more severe the adverse credit, the fewer lenders will consider lending.  Invariably this leads to paying a higher interest rate, the need to find a larger deposit or both.

Self-employed mortgage advice for first-time buyers

If you're self-employed and trying to get on the property ladder, getting a mortgage may seem like a daunting task.

As true specialists in self-employed mortgages, SEMH can improve your odds of finding the very best mortgage deal for your circumstances.

Not to mention, we can save you the time and hassle of navigating the mortgage process by yourself.

To get advice and a fast, no-obligation self-employed mortgage quote, make an enquiry here or call 0117 205 0655.

Graham Cox - MLIBF CeMAP Mortgage Adviser & Director of Hub FS Ltd

About the author

Graham Cox is the founder of Self Employed Mortgage Hub, the trading name of Hub FS Limited.

Based just north of Bristol, SEMH is an independent, whole of market broker and a true specialist in self employed mortgages, helping business owners across the UK get great mortgage and protection deals.

Graham's market commentary and analyis is regularly quoted in the national press and media, including The Guardian, Telegraph, FT Adviser, and BBC Radio Bristol.