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Lee and Neezam talk all about mortgages for the Self-Employed.
Is it harder to get a mortgage if you are Self-Employed?
The straight answer is yes, there’s no denying it is harder to get a mortgage when you’re Self-Employed. There are more obstacles in comparison to being employed.
What if I only have one year’s accounts, can I still get a mortgage?
A lot of people are declined by their bank because they haven’t been trading as Self-Employed for long enough. Around 95% of Mortgage Lenders will want you to have been trading as Self-Employed for at least two or three years so that they can see the sustainability of your business and income.There are a few lenders that will consider one year’s accounts, so it is possible, you just need to make sure you’re applying with the right lenders and having the right conversations.
Are Self-Cert mortgages still available?
No, these mortgages are not available anymore. There are many different ways lenders can evidence your income, but no Self-Cert mortgages.
Can you get a joint mortgage if one person is Self-Employed?
Absolutely, and it’s not hugely different when you’re applying with someone that’s employed. Most lenders are pretty comfortable with employed income, but if you’re Self-Employed, it can be a bit trickier, so be sure that you’re speaking with the right lenders. The bit that’s going to limit you is the Self-Employed income, but again, it’s just a case of making sure that you approach the right lender.
Is Buy to Let available for the Self-Employed?
Yes it is. There is a real challenge here, but it’s certainly possible. In terms of income requirements, you are not necessarily assessed on multiples of your income, but there is usually a minimum income requirement for Buy to Let applicants with most lenders. We would urge you to take advice from a broker about Buy to Let, particularly if you’re Self-Employed, as the combination of the two is a bit of a challenge.
What’s the difference between someone who is Self-Employed and a Limited Company Director?
Someone that’s Self-Employed might be a sole trader and they are submitting self assessment tax returns. If you’ve got a Limited Company set up, most people would do that if they’re kind of creating a business with someone else. If you’re a director, you’ll most likely have an accountant and draw a salary from your business. The difference when it comes to applying for a mortgage is how lenders will want you to evidence that income.
As a sole trader or a partner in a partnership, most of the time, they’ll be looking at your net profit on your tax returns, whereas if you’re a Limited Company Director, they’ll need to understand your share in, the revenue of and the net profit for the company. The difference is simply how lenders expect you to prove your income and how they will assess affordability based on that proof.
How does remortgaging work for the Self-Employed?
There’s no real difference here, if you’re purchasing a home and you’re Self-Employed or if you’re remortgaging and Self-Employed, the criteria is very similar. If you’ve bought a home when you’re employed, but when it comes to reviewing your mortgage, you’re Self-Employed, that can become a bit of a challenge.
How much can a Self-Employed person borrow?
There are lots of different ways that this can be approached, depending on the lender. Every lender is going to treat it slightly differently, and whether you’re Self-Employed or employed, affordability is key.
If you’re a Limited Company Director, a lot of lenders will want to see what salary and dividends you’re drawing. If you are retaining profits in the business for any bumpy months ahead or to reinvest, there are also a few lenders that will consider your net profit alongside your salary and dividends, which nine times out of ten is a higher figure, so allows you to borrow a fair bit more.
If you’re a sole trader, quite simply, it’s just your net profit that the lender is going to look at, and, again, it will vary by lender, so it’s important to get in touch with a qualified adviser and get advice.
What documents do I need when applying for a Self-Employed mortgage?
Preparation is key here, and it’s something that we can help you with, even if you’re newly Self-Employed. It is really important to get your documents in order when applying for a mortgage if you’re Self-Employed. There are many different documents that can be used for evidence in Self-Employed mortgage income, and they would typically include; tax calculation and tax overviews from HMRC, two or three years company accounts that can’t be any older than 18 months old, three months of business bank statements and standard documents such as ID, passport, driving licence, personal bank statements.
If you’ve got an accountant, you can request tax overviews and tax calculations (otherwise known as an SA302) from them. Coming out of the pandemic, lenders are asking for bank statements to ensure that the income levels are still the same post-COVID as they were beforehand.
How do you prove your income?
Each Lender is going to ask you for different documents, and over the last eighteen months, sustainability of business has been a real area of caution for lenders. A lot more lenders now ask for business bank statements for your business, and this has caused issues for many prospective buyers.
As a Limited Company Director, payslips aren’t going to be enough, as lenders know it would be possible to increase your salary prior to the mortgage application and put it straight back down once you’ve got it. The best thing to do is therefore to prove what you’ve been earning historically.
If you are Self-Employed and planning to apply for a mortgage, seek advice as early as possible. Speak to a broker because where one lender may turn you down, another may not, or one lender might lend you more than the next, so speaking to a qualified adviser can be the difference between buying a dream home or having to compromise.
Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it. Some buy to let mortgages are not regulated by the Financial Conduct Authority.