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Mortgages for self-employed applicants with bad credit

If you're self-employed with bad credit, it's still possible to be approved for a mortgage. You may need to apply through a specialist lender.

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Matthew Boyle
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The most important factor determining your approval will be your ability to prove a steady income.

Without at least three years of accounts to provide your mortgage lender, you’re likely to be deemed too much of a risk, at least while also carrying a bad credit score.

What's in this guide?

  1. What documents do I need to provide?
  2. What type of bad credit will affect my application?
  3. Should I use a specialist lender?
  4. Can I remortgage if I'm self-employed with bad credit?
  5. CIS mortgages with bad credit
  6. Tips to prepare for a mortgage application
Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage.

What documents do I need to provide?

If you’re self-employed, mortgage providers are keen to see as much proof as possible that your income is steady.

Self-employed applicants are generally viewed as riskier prospects because their income isn’t guaranteed. It’s up to you to prove otherwise.

You can do this with your SA302 forms. These forms detail your income for the year and how much tax you paid on it. They are issued by HMRC after you’ve submitted a paper tax return.

Alternatively, you can use accounts certified and submitted to HMRC by a qualified accountant.

Self-employed applicants will need at least one year of accounts to be considered for a mortgage. Realistically, if you have bad credit, you’ll need at least three years of accounts.

You’ll also need to provide proof of identity, proof of address, bank statements and all the other documents required from employed applicants.

What type of bad credit will affect my application?

Mortgage lenders will check your credit report as part of their overall assessment of your creditworthiness. The higher your credit score, the easier you’ll find it to be approved for a great mortgage deal.

However, it could be harder if you’ve struggled with serious debt in the past, and have been issued with defaults, CCJs, IVAs, bankruptcies or debt management plans. These will damage your credit score and your chances of being approved for a mortgage. Many lenders will flat-out refuse applicants who have these on their credit report.

In this scenario, it’s often necessary to work with lenders that specialise in offering deals to applicants with bad credit.

Should I use a specialist lender?

Although these specialist “bad credit” mortgage lenders will consider you in spite of these serious financial hiccups, they offer higher rates than traditional lenders.

In some cases, it may be more cost-efficient to repair your credit score and apply for a mortgage from a traditional lender in the future.

Self-employed applicants who are struggling with bad credit are recommended to work with a professional mortgage advisor. These individuals will be able to recommend the lenders who work with people in their situation.

This can save them a lot of hassle and prevent them from harming their credit score by applying to lenders who will automatically reject them.

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Can I remortgage if I’m self-employed with bad credit?

Those looking to switch from one mortgage to another will have to overcome the same hurdles as those applying for a new mortgage.

You may still need to work with a specialist lender, providing at least three years of accounts to prove your creditworthiness.

CIS mortgages with bad credit

If you work in the construction industry, it’s worth registering with the Construction Industry Scheme (CIS) and applying for a CIS mortgage.

With a CIS mortgage, you’ll be eligible to borrow more money because your affordability is based on net income, rather than net profit. What’s more, CIS mortgage providers tend to offer generous rates, even if you have a poor credit score.

You’ll need to provide CIS paylsips for the last six months to be eligible for these mortgages.

Tips to prepare for a mortgage application

Here are some tips to help ensure you’re in the best shape to be approved before submitting your mortgage application.

  • Get your accounts in order. Lenders will want to see your accounts for at least the past three years to approve a self-employed applicant with bad credit.
  • Pay your debts on time. Late repayments will damage your credit score even further, putting your mortgage application in further jeopardy.
  • Stop applying for credit. Every time you apply for credit, the lender runs a credit check on you, further damaging your credit score. For this reason, it’s best to avoid applying for credit in the months leading up to your mortgage application.
  • Reduce the amount of credit you have access to. If you have too much access to additional credit, perhaps via an overdraft or credit card, this may harm your application. Lenders see this as an opportunity to get into more debt, so close any products you no longer need.
  • Check the accuracy of your credit report. It’s possible there are errors on your credit report harming your eligibility for a mortgage. Check your credit report for mistakes and amend any you find by contacting any of the UK’s three major credit reference agencies: Experian, Equifax or TransUnion (Callcredit).

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