How to Get a Mortgage as a Business Owner

If you are a business owner, getting a mortgage can be more difficult than if you were someone working a traditional 9-5. 

‍

A survey by The Mortgage Lender (TML) in 2024 revealed that nearly half (50%) of self-employed individuals who applied for a mortgage had their applications rejected. Among those rejected, 30% cited their profession as being considered too unsteady or irregular.

‍

While being self-employed offers freedom and flexibility, it also presents certain challenges when financing a home. Lenders usually require borrowers to demonstrate financial stability and the ability to repay the loan before they agree to a loan. 

‍

Understand the Mortgage Process for Business Owners

Before we get into the specifics, it's important to recognise that if you are a business owner, you are considered to be self-employed by mortgage lenders. 

‍

This can be a red flag due to the perceived risk of inconsistent income. Unlike salaried employees who get fixed paychecks, your income may fluctuate, making it harder for lenders to assess your borrowing capacity. 

‍

However, the right preparation can help with these challenges. Mortgage lenders generally evaluate self-employed individuals based on the following:

‍

Income consistency: Lenders will review the consistency and amount of your income over the past several years.

‍Debt-to-income ratio: They will assess how much of your income is allocated to existing debt including personal or business loans. 

‍Credit score: Your credit history is a big factor. A higher score typically improves your chances of getting approved for a mortgage.

‍

Prove Your Financial Stability

Unlike traditional employees, business owners must provide more detailed documentation to prove their income and financial stability. Here are some documents you’ll need when applying for a mortgage as a business owner:

‍

Tax return: Lenders require personal and business tax returns for at least the past two to three years. They will look for consistency in income and profitability, so keep accurate and up-to-date records.

Profit and loss statement: This document helps lenders understand your business’s financial health. It should show the revenue, expenses, and net income of your business.

Balance sheet: A balance sheet gives an overview of your business’s assets, liabilities, and equity. It helps lenders assess the value and financial stability of your business.

Bank statements: Personal and business bank statements can demonstrate cash flow and financial discipline. Lenders often look at your monthly cash balance and transactions to gauge your ability to manage finances.

‍

Credit report: Your credit history and score will be carefully reviewed by lenders. Having a strong credit report is important. 

‍

The more organised and thorough you are in providing documentation, the easier it will be for lenders to assess your application and financial health. For more information on getting a mortgage without traditional accounts, check out our guide on Mortgages for Self-Employed Without Accounts.

‍

How Lenders Assess Your Income

As a business owner, your income may come from a variety of sources: salary, dividends, bonuses, or distributions from your business. This income is often subject to more scrutiny than that of salaried employees, as lenders want to make sure it's sustainable.

‍

Salaries and Dividends

If you pay yourself a salary, lenders can easily assess this income, as it provides a consistent and predictable amount each month. Salaried income is generally viewed as stable, making it easier for lenders to calculate affordability and determine how much you can borrow.

However, if a significant portion of your income comes from dividends, lenders may scrutinise it more closely. Dividend income is often seen as less reliable because it depends on business performance and profitability, which can fluctuate. 

‍

Profits

As a business owner, a portion of your income may come from company profits rather than a fixed salary. These payments reflect the success of your business and can provide additional income to support your mortgage application. However, lenders often view profit-based income with caution, as it can change depending on market conditions, business expenses, and overall company performance.

Lenders typically assess the sustainability and consistency of your profits over several years. If your business experiences significant income variations from year to year, they may take an average of your earnings rather than considering your most recent or highest year of profits. Some lenders may also discount a portion of these earnings to account for potential business downturns.

‍

Draws or distributions

As a business owner, you may receive income through draws or distributions, which are profit-based payments taken from your business rather than a fixed salary. These distributions allow business owners to access company profits without classifying them as traditional wages. While this can be a tax-efficient way to receive income, lenders often view it differently from a standard paycheck when assessing mortgage applications. To strengthen your mortgage application, it’s important to provide clear financial documentation showing consistent distributions over time. 

‍

Save for a Larger Deposit

Business owners may be asked to provide a larger deposit when applying for a mortgage. Traditional mortgage applicants, such as those with stable employment and fixed salaries, typically need to put down a deposit of 10-20%. However, self-employed individuals and business owners often face stricter lending criteria due to the risks associated with variable income streams. Many lenders require a larger deposit—often 25% or more—to offset the additional risk. To explore your deposit options, check out our First-Time Buyer guide.

‍

Consider Specialist Lenders

Not all mortgage lenders have the same criteria for self-employed individuals. Traditional banks may have stricter requirements than specialist lenders who focus on business owners and self-employed borrowers. These lenders evaluate a borrower’s overall financial picture, considering various income sources rather than relying solely on traditional metrics. They may consider factors such as the strength of your business, its growth potential, and the stability of your industry. If you have a strong track record and financial records that demonstrate your ability to sustain the business, specialist lenders may offer more favourable terms.

‍

The market for specialist mortgages catering to self-employed individuals is projected to expand from £32 billion today to £54 billion by 2029, indicating a growing demand for tailored mortgage solutions.

‍

Work with a Mortgage Broker

The mortgage process as a business owner can be confusing. Working with an experienced mortgage broker can help you find the best lender and mortgage product for your situation. A broker can assist you with gathering the necessary documentation, ensuring that your application is presented in the best possible light, and matching you with lenders who are comfortable working with business owners.

A broker can also help you understand different mortgage products available, such as remortgage options, variable-rate mortgages, and interest-only mortgages. They can provide guidance on the pros and cons of each option and help you make an informed decision.

‍

Be Prepared for a Longer Application Process

Getting a mortgage as a business owner often takes longer than the typical application process for salaried employees. This is due to the complexity of assessing business income, reviewing financial statements, and gathering extensive documentation.

‍

In addition, if you are working with a specialist lender or a broker, the process may take time to ensure that all the relevant factors are considered. It's important to remain patient and to plan to avoid rushing the process.

‍

Conclusion

Getting a mortgage as a business owner has its challenges, but it is possible with the right preparation and understanding of the process. By gathering the necessary documentation, understanding how lenders perceive your income, saving for a larger deposit, and working with specialist lenders you can improve your chances of getting a mortgage that fits your needs. 

‍

Are you looking for expert mortgage advice on getting a mortgage as a business owner? Contact Bell Financial Solutions today and let our specialists guide you through the mortgage process

‍