Guide to self-employed mortgages

Your home may be repossessed if you do not keep up repayments on your mortgage

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Are self-employed mortgages difficult to get?

It is widely claimed that it is harder to get a mortgage if you are self-employed. Whilst there may be elements of truth to this, it is not much more difficult than getting a mortgage if you are employed. It’s really down to knowing what is required and which lenders are more flexible. That is why it is important to use a quality mortgage broker like Mortgage Style.  

What is a self-employed Mortgage?

There is no such thing as a self-employed mortgage product. You will be applying for a standard mortgage and will have to meet the same kind of income and affordability criteria as an employed individual. Lenders must assess income a bit differently when reviewing applications from self-employed clients.  

What are lenders looking for?

Essentially when it comes to self-employed borrowers, lenders are looking for evidence of income and affordability as with employed individuals. The evidence of income typically comes in the form of a minimum of 2 years accounts, prepared by an accountant if it is a limited company, or tax returns for a sole trader business. However some lenders can accept 1 year’s accounts. As well as having your accounts in order, lenders will want to see the income that you have been reporting to HMRC; they will also ask for proof of tax that has been paid. HMRC can provide you with everything you need, including SA302 forms and an overview of your tax year. Mortgage Style will help package this for you. It can be disappointing when you present everything you think you may need for a mortgage application for self-employed, only to be turned down because the paperwork you present is actually incorrect.  

How is my income assessed?

Income is typically assessed on the basis of average profits for a sole trader over the past 2 years on average salary and dividends for a Limited Company director. The type of company you trade from has a bearing on how the lender calculates your income.
  • Sole Trader of LLP (Limited liability partnership): Lenders look at client’s net income after expenses for the purpose of assessing income levels. Note for partnerships: they will only take into consideration your share of the total income.
  • Ltd Companies: The majority of directors of Ltd companies are paid a combination of salary and dividend payments, most lenders will include both when assessing income. Some will use salary plus share of net profits which is good for many growing businesses some elements of profits are re-invested to fund future growth.
  • Contractors: The remuneration due under your current contract plus other factors such as experience and length of time contracting and contract history will have a bearing on how income is assessed by the lender. Some lenders will even annualise the day rate paid where a client has set up their own company.
 

Can I apply for a self-employed mortgage without certified accounts?

If you do not have accounts from a chartered accountant, the general consensus of opinion is to not panic. SA302 forms and a statement from HMRC will normally suffice. Although it cannot be denied that your mortgage application will run more smoothly if you use a chartered accountant, it is not a necessity.  

What else should I consider when applying for a mortgage while self-employed?

Other things that could have a bearing on your ability to get a mortgage:
  1. The maximum age limits that a lender will accept can be important. Typically, business owners and those working for themselves are more likely to stay working for longer than those who are employed. Therefore, finding a lender with a more flexible approach to maximum ages could be of benefit.
  2. If your most recent year’s profit was higher than previous years, some lenders will work off the most recent year which can maximise the amount you can borrow. Equally, if your most recent year’s profit is lower than previous years, some lenders will ignore the reduced figure and assess your income based on the better year.
  3. Recently changed company status? Sole traders or LLP’s will often change to a Ltd company status and this used to mean that you had to wait for a couple of years to get a mortgage but there are now options straight away.
  4. How much of your business do you own? Getting a mortgage can be more straightforward (and sometimes cheaper) when you are classed as ‘employed’. Historically most lenders class mortgage applicants as ‘employed’ where they own less than 20% of their business. However, we work with lenders who offer ‘employed’ status deals to clients who own up to 33% of their own firm.
 

Get expert advice from our friendly professionals

Mortgage Style is an award-winning broker based in Bristol. Between us we have over 100 years’ experience and help hundreds of clients find a mortgage to suit their needs. We have a reputation for tenacity and always go further to find a deal, even where other brokers have failed. Challenging mortgages in exceptional circumstances are our speciality and we’d love the chance to hear about your situation. Please get in touch today to find our more. We’ll talk you through our service and what you can expect. We charge a fee but you won’t pay anything unless you go ahead with our advice. contact@mortgage-style.co.uk 01275 370360