In this brief guide, we are going to discuss mortgage for self-employed with bad credit, how to get one and any things you should be aware of.

If you are a self-employed borrower, maybe a contractor and you are looking to get a mortgage then this may be more difficult than a buyer who has full-time employment and has bad credit.

There are over 500,000 self-employed people in the UK and the mortgage lenders are now making more self-employed mortgage products to suit these types of borrowers.

Most of the mortgage lenders who will be suitable for these types of borrowers may not be on the high street but rather specialist mortgage lenders who cater to self-employed borrowers.

The number of specialist mortgage lenders who will offer bad credit mortgages to self-employed borrowers.

Can a self-employed borrower with bad credit get a mortgage?

Yes, there are mortgages for self-employed borrowers with bad credit and you can get a mortgage if you are a self-employed borrower with bad credit but there are some things you will need to be aware of.

What is bad credit?

Bad credit is a negative mark on your credit file. Bad credit could be incurred by not keeping up with your credit obligations.

Bad credit includes:

  • County court judgements A CCJ
  • An Individual voluntary agreement (IVA)
  • A debt management plan (DMP)
  • A default
  • A bankruptcy
  • A home repossession
  • Missed credit repayments
  • A debt relief order

The easiest way to find out if you have bad credit is to check your credit score.

If you are unsure of what your credit score is then you should check your credit score from the four credit bureaus in the UK: Experian, Crediva, Equifax and Transunion.

Some of these credit bureaus may charge you a fee to view your credit report so what you can alternatively do is request a statutory credit report which is a free credit report which each credit bureau must provide to you upon you requesting it.

Alternatively, you can also use credit score services such as Checkmyfile and clearscore to check your credit report.

Mortgages for a self-employed borrower with bad credit

When looking to get a self -employed bad credit mortgage you should take the below things into consideration:

  • When considering bad credit mortgages most mortgage lenders will want to know how long its been since you got the bad credit and what type of bad credit you have. For e.g, if you have a CCJ a mortgage lender will give it less priority than if you had a bankruptcy.
  • When considering self-employed borrowers, mortgage lenders will always scrutinize the income of the borrowers for reliability to ensure that the borrower has enough income to repay the mortgage balance in full. 
  • For a bad credit borrower, the mortgage lender may scrutinise the income of the borrower more and may even accept a lower percentile of the borrower’s income when considering the mortgage affordability.
  • Self-employed mortgage lenders will like to see at least 3 years worth of accounts although some mortgage lenders will accept a minimum of 12 months worth of accounts.
  • Self-employed borrowers are able to keep the same mortgage deposit requirements as borrowers with full incomes but self-employed borrower with bad credit will likely have to put down a much larger mortgage deposit and hence your mortgage loan to value will be less.
  • As a self-employed bad credit borrower, you may find it much harder to get a buy to let mortgage and if you are able to get one you can expect a higher mortgage deposit requirement and a higher mortgage rate.
  • As a self-employed borrower with bad credit, you may be best placed to take advice from a specialist self-employed mortgage broker who understands the underwriting process of the mortgage lenders who may be willing to lend to you.
  • Finally, as self-employed bad credit borrower, you may not be able to benefit from the Government schemes listed below as they mostly require good credit score:

Government schemes which you may miss out on due to bad credit

  • Lifetime ISA– gives you a government bonus of £1,000 if you save the maximum £4,000 a year.
  • Help to buy ISA– gives a maximum bonus us £3,000 if you save the maximum allowed of £12,000. Before you get either you should consider which is better. Lifetime ISA vs Help to buy ISA.
  • Help to buy equity loan- gives you up to 40% as a 5-year interest-free equity loan. You begin to pay interest at 1.75 % after the fifth year and 1% plus RPI for every year thereafter.
  • Shared ownership- You can buy between 25% to 75% of the property initially with a shared ownership mortgage and then buy more using a staircasing mortgage.
  • Armed forces help to buy- similar to the help to buy equity loan but specific for the armed forces personnel giving them an increased chance of acceptance.
  • Rent to buy- This is the right to buy scheme on which this guide is currently discussing. A different marketing name is just used. Watch out for this when shopping to avoid missing out on eligible properties due to confusion.
  • Right to buy- allows you to buy your home at a discount price.
  • Preserved right to buy- same as above.
  • Right to acquire- same as above.

Depending on where you live, you may also be able to take advantage of home buying schemes provided by your local council. Example: In Norwich, the local councils provide the Norwich home options scheme.

What documents will you need fora self-employed mortgage with bad credit?

The documents you will need for a self-employed mortgage with bad credit include:

  • SA302 tax assessment return
  • Proof of ID
  • 3 years worth of company accounts
  • An accountants certificate for a mortgage
  • 3 months worth of bank payslips
  • Your CV

Tips on building your credit score

If you are a self-employed borrower and you want to get a bad credit mortgage then you may want to focus on improving your credit score first.

Below are some tips to improve your credit score:

  • Get a credit builder card to show good repayment behaviour
  • Get a secured credit card to show good repayment behaviour
  • Get a credit builder loan to show good repayment behaviour
  • Keep your financial accounts open as long as possible
  • Get on the electoral register
  • Avoid missed credit repayments
  • Avoid late credit repayments
  • Keep your credit utilization below 30%
  • Report your rental payments to the credit bureau
  • Avoid being rejected for credit
  • Avoid applying for too much credit in a short space of time

Need a self-employed bad credit mortgage?

You may want to consider using an independent mortgage broker to get a mortgage.

Mortgage brokers are important as they can access mortgage products from across the whole of the market in some cases.

This could be over 11,000 mortgage products. This may have some advantages rather than going directly to a mortgage lender.

A mortgage broker will look to understand your financial circumstances and then provide recommendations on which mortgage products may be suitable for you based on your mortgage affordability.

After giving you these mortgage recommendations, most mortgage brokers will seek your consent to apply for a mortgage in principle. 

This will allow you to shop for your home easier as more estate agents and sellers may take you seriously or it will give you confidence that your mortgage is indeed a possibility before you make a full mortgage application. 

Once you have found a home you want to buy and are satisfied with the mortgage offer for your mortgage then the mortgage broker will then look to get you a mortgage offer.

This will come with a key facts illustration document which details out the features of your mortgage including how much you will pay per month.

It will also contain information on if there are any limits such as early repayment fees, or annual overpayment limits.

If you are happy with everything you can then go on to secure your mortgage with the help of a conveyancer.

Your conveyancer will manage the legal searches on the property to ensure there aren’t any issues with it.

They will oversee the sales agreement to ensure it is in your best interest, they will manage the transfer of mortgage funds, exchange contracts with the seller or their conveyancer and set a completion date with the seller or their conveyancer.

FAQs: Mortgages for self-employed with bad credit

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

Yes, you will be able to remortgage if you are a self-employed borrower with bad credit. You may need to have acceptable equity in the property.

Can I get a CIS mortgage with bad credit?

You may be able to get a CIS mortgage if you work in the construction industry.

The Construction Industry Scheme (CIS) will allow you to borrow more money because the mortgage affordability is based on net income rather than net profit

You will have to provide your CIS payslips for the last six months to be eligible for the CIS mortgage.

In this brief guide, we discussed mortgage for self-employed with bad credit, how to get one and any things you should be aware of.

If you have any questions or comments please let us know.

John Bate

John has 22 years of experience in financial services. This spans across financial research, financial services (As a qualified mortgage broker and underwriter), financial trading and sales at global investment banks. While working as a publishing research analyst, he covered European bank credit and advised institutional clients on investment strategies at both JP Morgan and Societe Generale. John has passed all three levels of the CFA (Chartered Financial Analyst) programme.