See how we can help

Get started online

Bad credit mortgage & self employed

Written By:
Myles Robinson - Expert Finance Advisor

Posted: Feb 8, 2023

Bad credit mortgage for a self-employed applicant – We can help you get approved today

It has always been harder for self-employed people to get a mortgage, even with good credit. Lenders prefer the predictability and reassurance of a regular paycheck rather than the erratic incomes associated with self-employment.

The post-pandemic economy has only amplified this issue.

Now, if you’re self-employed and have a bad credit score – let’s just say it’s going to be an uphill struggle to get the funding you need without an expert mortgage broker who can help you get accepted for bad credit mortgages.

This guide explores the mortgage criteria for self-employed persons with bad credit, how to improve your chances of getting approved, how to get the best bad credit mortgage rates and what you would need to do to demonstrate affordability to qualify for a bad credit mortgage for self-employed individuals.

We can get you approved for a mortgage, start online below:

Get started online


Mortgage criteria for self employed individuals

The specific requirements vary depending on the mortgage lender and the policies they have in place. Most lenders will require applicants to provide 2-3 years’ worth of self employed trading accounts.

Some will be happy with a year’s worth. It all depends on how much risk your bad credit rating poses to them and why a specialist mortgage broker can be so important in getting the right mortgage deal.

Fluctuating income may not augur well for your application. It will help your cause if your trading accounts show that you had a steady income in the period under review. If you have a patchy income or credit history, proving that you have a strong track record in your industry might help build confidence with prospective lenders.

Mortgage companies will also analyse your credit report and interrogate your credit issues. The mortgage lenders will want to find out how long ago they were registered and the circumstances surrounding them at the time. Was there a significant life event, or was it due to general financial mismanagement?

The way mortgage providers interpret the credit issues in your report will vary based on the mortgage lender. Some may reject your application on minor problems, while others with a higher risk appetite may grant you a mortgage even with glaring red flags on your credit history.

Get started online


How to improve your chances of qualifying for a bad credit mortgage for self employed applicants

The fact that you are self employed, and have adverse credit, checks off two significant risk boxes for lenders. For this reason, you must do everything possible to make your application more appealing to property loan lenders. For instance:

  • Putting down a larger deposit can be hugely beneficial to your application. A down payment of at least 25% reduces the lender’s risk exposure, making them more likely to approve you for a mortgage, even with poor credit.
  • Provide at least three years’ worth of tax returns or trading accounts. If you provide evidence of longer trading history, it will be better for your mortgage application.
  • Resolve as many of your adverse credit issues as you can. If you have outstanding short-term loans, credit card bills, and other unsecured credit, pay them off one by one, starting with the lowest and working your way up.
  • Once you’ve resolved as much debt as you can, notify the three main credit reference agencies – Experian, TransUnion, and Equifax – so that they can update your credit file.
  • Ensure you stay on top of your payments by paying your bills and making outstanding loan repayments on time. This signals to mortgage lenders that your days of financial mismanagement are behind you.

It always helps to speak to an experienced bad credit broker who understands the ins and outs of the adverse credit mortgage market. They know the lenders with a higher-than-average risk appetite, with whom they can negotiate competitive mortgage terms.

Get started online


What is the maximum limit for a bad credit mortgage for self employed applicants?

There’s no standard limit. The maximum mortgage amount you qualify for depends on your risk profile, which is assessed based on your credit report and average annual earnings. Most lenders calculate the mortgage amount as a standard multiplier of 4-4.5x the borrower’s annual salary.

This means that if your annual income (which should reflect in your trading accounts) is £80,000 on average, you can qualify for a mortgage valued at £320,000-£360,000. If you’re applying for a joint mortgage, the maximum limit will be calculated on the annual salaries of both applicants.

How to pass an affordability assessment for a self employed bad credit mortgage


A person filling in a form

An affordability assessment is a test that a lender runs as part of your application and their due diligence to see whether you can afford the monthly mortgage repayments. The lender will want to see evidence proving that you can comfortably cover your mortgage instalments over and above your recurrent living expenses.

These include things like groceries, general household expenses, utilities, gas, debt repayments, and anything else that constitutes your monthly expenditure.

Affordability assessments also “stress test” your finances to see how you would hold up if things changed for the worse. For instance, they’ll want to see if you would still afford your mortgage repayments if you lost your current source of income, started or expanded your family, or fell severely ill. Based on the lender’s findings, they will be able to approve you for a mortgage you can afford.

As a self employed applicant, your income is the main thing you need to demonstrate to pass an affordability assessment. One way to do this would be to provide evidence of your earnings in the form of your latest self-assessment tax return forms (Form SA302) which are submitted to the HM Revenue and Customs (HMRC).

You may also need to provide 1-3 years’ worth of trading accounts for your business, although not all lenders require this.

It is worth noting that mortgages approved on the basis of applicants certifying their own income are no longer an option. This verification method was discontinued since lenders had no way of verifying whether the applicants were being truthful or not.

Get started online


How to obtain a copy of your SA302 form

If you don’t have copies of the SA302 forms you submitted in the last three tax periods, you can download them from the HMRC portal. The site allows users to access the documents they submitted online up to the last four years. If you submitted your tax returns via post, you would need to request the HMRC to send you hard copies of the same.

The information on form SA302 tells lenders:

  • Your declared annual income for each tax year
  • How much income tax you paid during the periods in question
  • How much you contributed to the National Insurance during each tax year
  • All the income you received, including interest and dividends payments

What income do lenders consider for a bad credit mortgage for self employed individuals?

There is often confusion about what constitutes self-employment income. Whether or not your business “pays” you a salary, self-employment income consists of your or your business’ gross earnings less the allowable expenses.

Allowable expenses include things like:

  • Bad debts
  • Business loan interest
  • Capital loan(s) repayments used to repair or replace equipment required by the business
  • Costs associated with repairing or replacing equipment required by the business
  • Expenses incurred for purposes of the business
  • Value-added tax (VAT) that is paid in excess of the VAT received by the enterprise

Allowable expenses don’t include:

  • Money spent on business meals or entertainment
  • Money spent on new equipment or to expand the business
  • Personal or domestic expenses that are non-essential to the business
  • Write-offs or amounts lost due to depreciation

Lenders will consider your self employment income for the 1-3 years leading up to your application when assessing the right mortgage amount you qualify for. Suppose you retained the profits your business made over and above the allowable expenses drawn. Whether or not these will be considered part of your assessable income will depend on the lender.

If you are unsure about what parts of your overall income are eligible for poor credit mortgages, consult bad credit mortgage brokers for help with your application and to find the best mortgage deal.

Get started online


Get expert help from an experienced broker

Bad credit mortgage brokers understand the nuances of the mortgage market. If you’re self employed and have a bad credit rating, the chances of a mainstream lender approving you for a loan are slim to none. You’ll need expert help in navigating the process.

A bad credit broker knows which specialist lender or mortgage provider would likely approve your application, despite a poor credit score and bad credit history.


How much do I need to earn in self employment to get approved for a mortgage or self employed loan?

When assessing your mortgage application, lenders consider your income for the last 1-3 years, depending on the provider. There’s no minimum amount you need to earn to qualify for a mortgage or self employment loan.

It all comes down to the cost of the property you want to purchase and whether 4-4.5x your annual income would be sufficient to purchase it.

How many years of accounts are required for a bad credit mortgage for self employed applicants?

It depends on the mortgage product and company. One mainstream lender may ask for 2-3 years’ worth of trading accounts, while others are happy with just one. It is ultimately at the discretion of the lender.

Other providers will also request copies of the SA302 forms you submitted in the last 1-3 tax periods in addition to your trading accounts to verify your income.

Do the retained profits in the business count as income when applying for a bad credit mortgage for self employed individuals?

Some lenders take retained profits into account when doing their affordability assessments. Others don’t.

It really depends on the lender. That said, nearly all specialist bad credit mortgage providers take retained profits into account. A mainstream high street lender rarely (if ever) does.

Whether you live in England or Scotland we can help get you approved for your mortgages.

Get approved for a bad credit mortgage below:

Get started online