Income Evidence for Self-Employed Mortgages; Understanding requirements for Sole Traders, Company Directors, and Contractors
Author: Andy Bedford » Publish Date: 16 June 2025
Many self-employed applicants believe they’re at a disadvantage when it comes to securing a mortgage.
But the problem isn’t eligibility—it’s self-advising. The rules lenders apply to income calculations for the self-employed are often complex, technical, and vastly different from one another. What confuses many is not whether they can get a mortgage, but how their income will be assessed—and how that assessment can swing their borrowing potential by tens or even hundreds of thousands of pounds.
This post unpacks the different classifications of self-employment—sole traders, limited companies, partnerships, LLPs, and contractors—and examines how lenders treat each. Whether you’re new to self-employment or an experienced business owner, understanding this will give you clarity—and a significant advantage when applying.
When Are You Considered Self-Employed for a Mortgage?
You may think you’re employed, especially if you’re on payroll—but if you own 20% or more of the business you work for, many lenders will treat you as self-employed and virtually all will work this way if you exceed 24% ownership. That means you’ll need to provide different types of income evidence than a standard employee would.
Being “self-employed” in the eyes of a lender doesn’t just refer to being your own boss—it’s about ownership, control, and liability.
How Sole Traders Prove Income: SA302s, Accounts, and Lender Variations
What is a Sole Trader?
A sole trader is a self-employed individual who owns and operates their business as a private individual. There’s no legal distinction between personal and business assets. It’s the simplest business structure in the UK and often used by freelancers, tradespeople, and consultants.
How Lenders Assess Income
Lenders will nearly always ask for:
- SA302s (tax calculation summaries from HMRC)
- Tax Year Overviews (TYOs) confirming tax paid
They’ll typically use your taxable profit as the income figure. But this is where it gets nuanced:
- The number of required years trading will vary; giving differing lending amounts.
- Some lenders may allow adjustments for capital allowances (like investment in equipment) which reduce taxable profit but don’t are not ongoing expenses.
- A small number may instead use operating profit from formal accounts—but only when these are professionally prepared.
Limited Company Directors Mortgage Rules: Salary, Dividends, and Retained Profit
What is a Limited Company?
A limited company is a distinct legal entity from its owners (directors/shareholders). Profits belong to the company, not the individual, and are typically paid out as a mix of salary and dividends.
How Lenders Interpret Income
This is where things really fragment:
- Some lenders use salary + dividends reported on SA302s. But other will use the company accounts, offering two different year ends, and very different lending amounts.
- A few consider retained profits (undrawn earnings left in the company) using:
- Net profit before tax
- Or operating profit (with or without director’s remuneration)
Different documents often cover different time periods, so two lenders may assess two different years—leading to wildly different loan sizes.
And if your company has:
- Large retained profits
- Heavy capital allowances
- Temporary R&D losses
- Or rapid growth in recent trading
…then some specialist lenders may ignore these anomalies or allow income to be based on just one year’s strong performance.
In short: your income could be £30,000 or £130,000 depending on which lender is looking.
Directors Loan Account Income in a Mortgage Application
Some company directors will be drawing income from a “directors loan account”. Often this is a notional deductible for tax-purposes created when parts of a business are sold or transitioned from one type of ownership to another.
Whilst great for tax purposes; directors loan account income is relatively toxic from a mortgage point of view with most lenders refusing to consider it. However, some may and this will be an income type where it highly unlikely you will successfully self-advise on a mortgage.
LLPs and Partnerships: Mortgage Evidence Rules for Business Partners
What is a Partnership or LLP?
A Partnership shares ownership and liability between individuals. A Limited Liability Partnership (LLP) allows partners to limit personal liability, functioning somewhere between a general partnership and a limited company.
Lender Preferences
Many lenders will look at:
- Your share of taxable profit from SA302s
- Tax year overviews
- Sometimes, partnership accounts showing total firm performance
However in LLP’s:
- Some lenders require returns from all partners, which can be extremely prejudicial in firms like law practices with 100+ partners.
- A few lenders may exclude unusual deductions (e.g. one-off R&D costs) or base assessments solely on the applicant’s income share.
Once again, approaches vary significantly. Some focus strictly on the individual; others scrutinise the firm as a whole. So using a competent mortgage advisor will make the process far simpler.
How Many Years of Accounts Do You Need for a Self-Employed Mortgage?
- Most high-street lenders want two years of accounts or tax returns.
- Some prefer three years, especially if profits are volatile.
- A growing number of lenders—both high street and specialist—can work with just one year of trading, especially with strong performance and sector stability.
This is key for startups or professionals transitioning into new business models. The quality and consistency of the accounts often matters more than time alone.
Changing from Sole Trader to Ltd Company: Does It Affect Your Application?
Switching from one business type to another? Lenders may see this as a continuation or a new venture—and it’s not always clear-cut.
Common Examples:
- Sole trader incorporating into a limited company: Some lenders treat it as the same business. But if a new shareholder (like a spouse) is added for tax planning, others may deem it a new business entirely.
- Running both sole trader and limited company simultaneously: This is usually problematic as one side of the income is decreasing significantly (and therefore often disregarded) whilst the other increases (and therefore gets averaged down). Avoiding this arrangement is generally best for mortgage purposes.
- Changes in trading activity: If your business has entered new markets or taken on new partners, many lenders will reset the clock on required trading history.
Can Contractors or CIS Workers Be Treated as Employed by Lenders?
What Are CIS and Day-Rate Contractors?
- CIS (Construction Industry Scheme): Self-employed but paid with tax deducted at source.
- Day-rate contractors: Typically IT, engineering, or creative professionals with consistent contracts.
How Lenders Treat Them
Some lenders assess these individuals as employed, using:
- A calculation like day rate × 5 × 46 weeks
- No need for two or three years of accounts
This can be especially helpful for:
- People who’ve just gone self-employed
- Those transitioning from salaried employment in the same industry
- Applicants with day/weekly contracts at equivalent or higher income levels than before
But this is an area where many lenders will not treat you in this preferential way, and for those that do it is dependent on lots of other widely varying criteria like income level, contract duration, length of industry sector experience etc. Hence using a mortgage broker is a good idea to navigate this complexity.
Why Income Evidence Changes How Much You Can Borrow
Even among reputable high street lenders, loan sizes can vary significantly based on:
- Income calculation method (SA302s vs accounts)
- Treatment of capital allowances
- Consideration of retained profits or R&D losses
- Number of trading years accepted
It’s not uncommon for one lender to offer £120,000 while another offers £320,000 to the same applicant.
Why You Should Use a Mortgage Broker if You’re Self-Employed
If you’re self-employed—whether as a sole trader, LLP partner, contractor, or limited company director—your mortgage journey is entirely navigable, but not intuitive.
Getting it right means:
- Understanding how lenders interpret income
- Knowing which documents to present—and when
- Matching your business structure to the right lender criteria
But this is only one aspect of your application, and all the others are equally complex and varied. And that’s why an experienced mortgage adviser makes the difference. We help ensure you’re assessed accurately and fairly, maximising your borrowing potential with the minimum of stress.