Being self-employed and having adverse credit does not necessarily prevent you from obtaining a mortgage. However, lenders will normally examine both your income and your credit history carefully before deciding whether an application meets their criteria.
Your available options can depend on how your business is structured, how long you have been trading, the income evidence you can provide and the nature of any credit problems. Each lender applies its own criteria, so outcomes can vary considerably.
This guide explains how lenders may assess self-employed applicants with bad credit and what could help you prepare before making an application.
Can you get a mortgage if you are self-employed with bad credit?
It may be possible. Some lenders consider applications from self-employed people with defaults, County Court Judgments (CCJs), missed payments or other adverse credit.
The presence of bad credit may reduce the number of lenders available, particularly when the issue is recent, substantial or remains unresolved. It does not, however, automatically mean that an application will be declined.
Lenders will usually assess the complete application, including:
- Your current and previous income
- How long you have been self-employed
- The stability of your business
- Your deposit or available equity
- Your existing financial commitments
- The type, amount and age of any credit issues
- Your recent payment history and bank-account conduct
How lenders may assess self-employed income
The evidence a lender requests will usually depend on how you earn your income and the way your business is structured.
Sole traders and partnerships
Lenders commonly ask for evidence such as:
- SA302 tax calculations
- Tax year overviews
- Business or personal bank statements
- Finalised accounts, where available
Some lenders calculate affordability using an average of recent years, while others may consider the latest year where the figures are sustainable and supported by the wider business performance.
Limited company directors
A lender may assess income using salary and dividends. Certain lenders may also consider a share of retained company profit, subject to their criteria and the applicant’s ownership of the company.
Documents may include:
- Company accounts
- Personal and business tax calculations
- Business bank statements
- Evidence of salary and dividends
- An accountant’s certificate or reference
Contractors
Depending on the type of contract and employment history, some lenders may assess income using the current contract rate. They may consider the remaining contract term, previous contracts, gaps between assignments and experience within the industry.
How much trading history may be required?
Many lenders prefer applicants to have at least two years of accounts or tax information. However, some may consider a shorter trading history when there is suitable supporting evidence.
This could include applicants who have moved from employment into self-employment within the same profession or who can demonstrate a consistent and sustainable level of income.
A shorter trading history combined with recent adverse credit may result in fewer options, as both factors can increase the perceived risk to a lender.
How lenders may assess bad credit
Lenders do not normally treat every credit problem in the same way. Their assessment may include the following factors.
The type of credit issue
A small communications or utility default may be viewed differently from mortgage arrears, a substantial loan default, an Individual Voluntary Arrangement or previous bankruptcy.
How recently it occurred
Recent adverse credit will often have a greater effect than an issue that occurred several years ago. Continuing missed payments may be viewed more seriously than an isolated historic incident.
The amount involved
The value of a default or CCJ can affect the lenders and products available. A larger credit issue may require more time to have passed or stronger evidence that the applicant’s position has improved.
Whether it has been settled
Some lenders prefer adverse debts to have been repaid, although settlement does not remove the record immediately from a credit report. Other lenders may consider certain outstanding issues, subject to their individual criteria.
Whether there is a pattern
Several recent credit issues may cause greater concern than one isolated event. Lenders may look at whether the circumstances appear to have stabilised and how accounts have been managed since the problem occurred.
What if your income has changed?
Changes in self-employed income do not automatically prevent a mortgage application, but lenders may want to understand the reason.
Where income has increased, a lender may check whether the rise appears sustainable. Where it has decreased, affordability could be based on the lower or more recent figure.
Temporary changes caused by investment, illness, parental leave or wider economic conditions may need to be explained and supported with suitable evidence.
Will you need a larger deposit?
Applicants with adverse credit may need a larger deposit than someone with an otherwise similar application and a clean credit history. The amount required will depend on the lender, the credit issues involved and the overall strength of the case.
A larger deposit may reduce the lender’s exposure, but it does not override affordability checks or guarantee acceptance.
Will the interest rate be higher?
Mortgage products available to applicants with adverse credit can carry higher interest rates or fees. This is more likely where credit issues are recent or significant.
Rates and products change regularly, and the most appropriate option cannot be determined from the credit issue alone. The overall cost, product terms and the applicant’s circumstances should all be considered.
Preparing before applying
The following steps may help you understand and strengthen your position before submitting an application:
- Check your credit reports for inaccurate or outdated information
- Make all current commitments on time
- Avoid unnecessary new borrowing or repeated credit applications
- Reduce unsecured balances where affordable
- Keep personal and business finances clearly organised
- Prepare recent accounts, tax calculations and bank statements
- Make sure tax returns and Companies House records are up to date
- Be ready to explain significant income changes or historic credit issues
- Build the largest sustainable deposit you can without exhausting emergency funds
It is usually sensible to understand the likely criteria before making a full mortgage application. Multiple unsuccessful applications could result in additional searches appearing on your credit report.
When it may be helpful to speak to a mortgage adviser
Regulated advice may be particularly helpful where:
- You have less than two years of trading history
- Your income varies substantially between years
- You are a limited company director with retained profits
- You work under short-term or renewable contracts
- Your adverse credit occurred recently
- You have more than one type of credit issue
- You have been declined by a lender
- You are unsure which income evidence will be accepted
How Mortgage Bridge supports you
Mortgage Bridge provides information to help you understand how self-employed income and adverse credit may be assessed. We do not provide mortgage advice, recommend lenders or determine whether a mortgage is suitable for you.
Where appropriate, we can introduce you to an FCA-regulated mortgage adviser. The adviser can assess your complete circumstances, check affordability and provide personalised regulated mortgage advice.
Common questions
Can I get a mortgage with one year of accounts and bad credit?
It may be possible, but the combination of a short trading history and adverse credit is likely to reduce the number of available lenders. Your previous employment, current business performance, deposit and the nature of the credit issue may all be relevant.
Do lenders use turnover or profit?
Turnover alone is not normally treated as personal income. Sole traders are commonly assessed using taxable profit, while limited company directors may be assessed using salary, dividends or, with some lenders, a share of retained profit.
Will a settled default improve my options?
Settlement may help with some lenders, but the age, amount and circumstances of the default will also be considered. The record may remain on your credit report for a period after it has been settled.
Can I apply if my latest year’s income is lower?
Possibly. A lender may use the lower or more recent figure and could ask why income has fallen. The application will still need to meet its affordability and underwriting requirements.
Does using an accountant guarantee approval?
No. Professionally prepared accounts can provide useful evidence, but they do not guarantee that a lender will accept an application.
Next steps
If you are self-employed and have adverse credit, gathering accurate income evidence and reviewing your credit reports can be useful first steps.
Mortgage Bridge can provide general information and, where appropriate, introduce you to an FCA-regulated mortgage adviser who can assess your circumstances and explain the options that may be available.
As a mortgage is secured against your home, it could be repossessed if you do not keep up the mortgage repayments.
Related Guides
Explore more advice that may help your situation.
Benefits & Complex Income Guides
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Low Credit Score Guides
See how fluctuations in income interact with lower credit scores.
Joint Applications (Bad Credit)
Explore options if you are applying with another person.
Important information: Mortgage Bridge provides information only and acts as a mortgage introducer. We do not provide mortgage advice or make lender recommendations. We can introduce you to an FCA-regulated mortgage adviser who can provide personalised mortgage advice.