5 Common Mistakes Self-Employed Individuals Make When Applying for a Mortgage

Important to know

A mortgage is a loan secured against your home. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.

Buying a home is an exciting milestone, but it can be particularly challenging for self-employed individuals. Unlike traditional employees, self-employed individuals face unique hurdles when applying for a mortgage due to the nature of their income and business structure.

This blog post will explore the top five mistakes self-employed individuals often make when seeking a mortgage for their dream home or considering a remortgage. Understanding these common pitfalls and learning how to avoid them can increase your chances of securing the right mortgage and making your homeownership dreams come true.

Whether you are just starting your own business or have been self-employed for some time, it is crucial to navigate the mortgage application process with care and preparation. In the following sections, we will delve into each mistake in detail and provide practical tips on how to overcome them.

So, let’s dive in and discover the five common mistakes self-employed individuals should avoid when applying for a mortgage!

Mistake #1: Neglecting to Maintain a Healthy Balance Sheet

When applying for a mortgage as a self-employed individual, it is essential to present a healthy balance sheet that shows your assets outweigh your liabilities. Lenders want to ensure that you have the financial stability to repay the loan and mitigate the risk of default.
Unfortunately, many self-employed individuals neglect this aspect and find themselves in a situation where their liabilities outweigh their assets. This can be detrimental to your mortgage application as lenders may perceive it as a potential risk to your business’s financial health.
To avoid this mistake, take proactive steps to improve your balance sheet. Regularly review your company accounts and aim to increase your assets while minimising liabilities.
Consider working with an accountant who specialises in assisting self-employed individuals to ensure accurate tracking of your financial position.

Mistake #2: Relying on Directors Loan as Income

As a business owner, you may be tempted to use directors’ loans as income when applying for a mortgage. While it might seem like an easy way to access funds for personal expenses or investments, relying solely on directors’ loans can hinder your mortgage approval process.
Mortgage lenders prefer provable forms of income such as salary, dividends, or net profit after tax when assessing affordability. Directors’ loans are considered repayable debts rather than stable income sources since they need to be paid back eventually.
To strengthen your mortgage application, focus on demonstrating consistent and reliable income streams from legitimate sources within your business structure. This will provide lenders with the reassurance they need regarding your ability to meet repayment obligations.

Mistake #3: Applying for a Mortgage Too Soon after Forming a Limited Company

If you’ve recently formed a limited company and are eager to secure a mortgage quickly, you may encounter challenges due to insufficient transaction history. Many lenders require at least 12 months of business current accounts before considering an application from self-employed individuals.
While it may be possible to find a lender willing to work with shorter trading histories, it is generally advisable to wait until you have a full 12 months of accounts. This allows you to demonstrate a more stable financial position and opens up a more comprehensive range of lenders with competitive interest rates.
Exercising patience and waiting for the appropriate time can increase your chances of securing a mortgage on favourable terms. Consider seeking professional advice from experienced mortgage brokers who specialise in assisting self-employed individuals to navigate this process effectively.

Mistake #4: Living in an Overdraft

Living in an overdraft can negatively impact your chances of obtaining a mortgage as it raises concerns about your ability to maintain your standard of living and meet repayment obligations. Mortgage lenders primarily evaluate personal bank statements when assessing affordability rather than business accounts.
To address this issue, aim to maintain positive balances in your personal bank accounts and avoid relying on overdrafts for day-to-day expenses. By demonstrating sound financial management practices, lenders will perceive that you have sufficient income and expenditure sustainability, leading to better disposable income calculations.

Mistake #5: Going Directly to a Bank Instead of Seeking Professional Advice

One common mistake self-employed individuals make is going directly to their bank when seeking a mortgage. While banks offer mortgages, each lender has different criteria and requirements based on individual circumstances.
Working with an experienced mortgage advisor specialising in assisting self-employed individuals can significantly simplify the process while ensuring access to the most suitable interest rates and products available for your unique situation. Your Mortgage Experts offer bespoke advice tailored to your unique circumstances. Weigh the pros and cons against your financial goals and risk tolerance. Explore all your options with our help to make an informed decision that aligns with your long-term objectives. Your Mortgage Experts is here to guide you with personalised service and 20 years of experience.


Securing a mortgage as a self-employed individual may seem daunting. Still, by avoiding these five common mistakes, you can improve your chances of success. Remember the importance of maintaining a healthy balance sheet, relying on proven forms of income, waiting for adequate trading history before applying, avoiding living in an overdraft, and seeking professional advice from mortgage experts for the self-employed. Navigating the mortgage application process as a self-employed individual requires careful planning, preparation, and understanding of lenders’ requirements. You can read further our handy tips on how to prepare a self-employed mortgage. By taking proactive steps and enlisting the help of professionals, you can increase your chances of obtaining a mortgage that suits your needs and achieving your dream of homeownership.

Why is maintaining a healthy balance sheet important for self-employed individuals seeking a mortgage?

A healthy balance sheet ensures lenders of your financial stability to repay the loan, reducing the risk of default

Why should self-employed individuals avoid relying on directors' loans as income for mortgage applications?

Directors' loans are considered repayable debts rather than stable income sources, and lenders prefer provable forms of consistent income.

What's the drawback of applying for a mortgage soon after forming a limited company?

Applying too soon can pose challenges due to insufficient transaction history, as many lenders require at least 12 months of business accounts for consideration.

Luca Bertolino

Mortgage Expert

Your Mortgage Experts is led by Luca Bertolino with 20 years experience in financial services and in the property market. Through Luca’s wealth of knowledge and expertise, Your Mortgage Experts have become a trusted adviser that clients have come to rely upon for all their mortgage and protection needs.

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