Self-employed Right-to-Buy mortgage: what lenders need

Being self-employed doesn’t stop you from getting a self-employed Right-to-Buy mortgage. The main question is whether a lender can verify your self-employed income, confirm the mortgage is affordable and accept the property you’re buying.

Your council or landlord decides whether you’re eligible for Right to Buy and confirms your Right-to-Buy discount. The mortgage is assessed separately by the lender.

In our experience, the important part isn’t simply whether you’re “self-employed”. It’s how you earn your income, how long you’ve been trading and whether the figures give a lender a clear picture of what you can afford.

Can you get a Right-to-Buy mortgage if you’re self-employed?

Yes, potentially. A self-employed Right-to-Buy mortgage is still a normal residential mortgage, but the lender may need more evidence to understand your income.

This can apply if you’re a:

• Sole trader
• Limited company director
• Contractor
• Freelancer
• Partner in a business

Being self-employed isn’t automatically a problem. What matters is whether your income can be evidenced, the mortgage is affordable and the rest of the application fits the lender’s criteria.

When we assess a case, we’d normally want to understand your business structure and income before looking at lenders. That’s because the same earnings can be treated differently depending on whether you’re a sole trader, company director or contractor, which is why the lender choice can matter when getting a mortgage when self-employed.

Right to Buy eligibility is separate from mortgage approval

Right to Buy is a way of purchasing an eligible council home at a discount. It isn’t a separate mortgage product.

Your council or landlord deals with the Right to Buy side of the purchase, including confirming your eligibility, valuation, discount and purchase price.

The mortgage lender considers:

• Your income
• Whether that income is sustainable
• Your credit history
• Existing financial commitments
• How much you need to borrow
• Whether the property is acceptable security

So, being eligible for Right to Buy doesn’t guarantee mortgage approval.

We’d generally recommend looking at the mortgage side before assuming that the council’s discounted purchase price will automatically be affordable. The discount can help considerably, but your income and circumstances still need to support the mortgage required.

How your Right-to-Buy discount may affect the mortgage

Your Right-to-Buy discount reduces the amount you pay for your home.

For example, if the property is valued at £170,000 and your discount is £26,000, the discounted purchase price would be £144,000.

Current GOV.UK Right to Buy guidance explains that some lenders treat the discount as the deposit, while others don’t.

This can be particularly useful if you have sufficient income to support the mortgage but haven’t built up a large cash deposit. However, we wouldn’t assume at the outset that you’ll definitely be able to buy with no cash deposit.

If you’re planning to use your Right-to-Buy discount as a deposit, we’d want to establish early whether the lenders suitable for the rest of your application will also accept the discount in this way.

What self-employed income evidence may lenders need?

The exact paperwork depends on how you’re self-employed and which lender you’re applying to.

You may be asked for:

• SA302 tax calculations
• Tax year overviews
• Finalised business accounts
• Personal bank statements
• Business bank statements, where required
• Accountant details or an accountant’s certificate
• Contracts or evidence of ongoing work
• Your Right to Buy offer or Section 125 Notice once issued

We’d normally recommend getting your latest accounts, tax calculations and tax year overviews together early rather than waiting until a lender asks for them.

When we’re reviewing an application, we’d want the income evidence to tell a consistent story. If your accounts, tax records and bank activity don’t appear to line up, that doesn’t necessarily stop you getting a mortgage, but we’d want to understand why before choosing a lender.

The documents requested can also differ between lenders, so having the right paperwork isn’t just about proving that you earn money. It’s about supporting the particular income figure the lender will use for affordability.

Sole traders buying through Right to Buy

Sole traders are generally assessed using profit rather than turnover.

For example, if your business has £70,000 of sales but reports £38,000 net profit, it’s the profit figure that’s likely to be more relevant to the mortgage assessment.

We’d usually prefer to see stable or increasing profits rather than a sharp fall in the latest year. A reduction doesn’t automatically stop an application, but it’s something we’d want to understand before deciding which lenders are realistic.

Lenders can also take different approaches to fluctuating earnings. One may use an average across previous years, while another may place greater weight on your latest figures, particularly where income has fallen.

Limited company directors buying through Right to Buy

If you’re a limited company director, a Right-to-Buy mortgage can be more complicated because the amount your company earns isn’t necessarily the same as the income you personally withdraw.

Some lenders assess salary and dividends. Others may be able to consider your share of company profit or retained profit, depending on their criteria.

This is one of the situations where lender selection can make a significant difference.

If you deliberately take a relatively low salary and leave profit inside the company, we wouldn’t automatically assume your salary and dividends give the full picture of your financial position. How lenders assess salary, dividends and retained profit can therefore affect how much you’re able to borrow.

Contractors and freelancers buying through Right to Buy

Contractors and freelancers don’t always fit neatly into the same category.

Depending on how you’re paid, a lender might assess your tax returns and accounts or, in some circumstances, look at your current contract and day rate.

They may also consider:

• How long you’ve been contracting
• Your previous experience in the same industry
• Gaps between contracts
• How long remains on your current contract
• Evidence that your work is likely to continue

If you’re contracting, we’d therefore want to establish how a lender is likely to classify your income before deciding what evidence you’ll need.

What if you only have one year’s accounts?

Having only one year’s accounts doesn’t necessarily mean you can’t get a Right-to-Buy mortgage, but your lender options may be more limited.

Some lenders can consider shorter trading histories, while others want a longer track record. The rest of the application can therefore become particularly important.

If you only have one year of self-employed accounts, we’d want to understand factors such as:

• Your previous experience in the same industry
• How the business is performing now
• Whether income appears sustainable
• Your credit history
• How much you need to borrow
• Your overall financial position

We’d recommend checking the available options before submitting an application rather than simply applying to your existing bank and hoping its criteria fit.

What else can affect your Right-to-Buy mortgage options?

Your self-employed income is only one part of the application.

A lender may also consider:

• Credit history
• Loans, credit cards and other commitments
• Dependants and household expenditure
• Your age and proposed mortgage term
• The size of your Right-to-Buy discount
• Whether the discount can act as the deposit
• Property type and construction
• Service charges if you’re buying a flat or leasehold property

The property itself can be important. GOV.UK notes that mortgage availability may be more limited for some high-rise flats, properties with non-traditional construction and properties on certain large or run-down estates.

This is something we’d want to identify early. A strong income and a large discount won’t help if the lender isn’t prepared to accept the property as security.

Example of a self-employed Right-to-Buy mortgage

Consider this illustrative example:

• Property value: £170,000
• Right-to-Buy discount: £26,000
• Discounted purchase price: £144,000
• Cash deposit: £0
• Mortgage required: £144,000
• Self-employed net profit: £38,000

A lender that accepts the discount as the deposit might consider a £144,000 mortgage.

However, we wouldn’t assume from those figures alone that the mortgage will be approved. The lender would still assess the applicant’s income history, existing commitments, credit record and the property itself.

Before applying, you can use our Right-to-Buy mortgage calculator to estimate how your discount could affect the purchase price and the amount you may need to borrow.

When to speak to a mortgage broker

In our experience, the more difficult self-employed Right to Buy applications usually aren’t difficult because of one single issue.

It’s often the combination of your business structure, trading history, income figures, Right-to-Buy discount, borrowing requirement and property that determines which lenders are realistic.

A broker can help work through those factors together, check how different lenders may assess your income and identify what evidence you’re likely to need before an application is submitted.

This can be particularly useful if you:

• Have only one year’s accounts
• Take a low salary from your company
• Retain profit in the business
• Work as a contractor
• Want to use your discount as the deposit
• Are buying a property that may be harder to mortgage

If you’re self-employed, getting Right-to-Buy mortgage advice before you apply can help establish whether your income, discount, borrowing requirement and property are likely to work together.