Self Employed Mortgages
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The idea of getting a mortgage if you are self employed can seem like a daunting process. Due to the nature of your income, your affordability is not assessed in the same form as someone who receives a fixed salary from an established employer or institution.
But, with self employment on the rise, the need for those who run their own business to have access to mortgage options is higher than ever. Therefore, there are ways in which you can secure a mortgage if you are self employed.
Can you still get a mortgage if you only have one years worth of accounts?
You can still secure a mortgage if you are self employed and you only have one years worth of accounts. The success rate of this depends on how strong those accounts from the year appear to a lender, but the main barrier you are likely to come across here is that most businesses see lower numbers within their first year and your accounts are likely to reflect that.
If your business sits within a healthy, well performing industry and you have a strong year’s worth of projection to go alongside your accounts, this can also stand you in greater stead in the eyes of a lender.
If I’m self-employed, can I get a buy to let mortgage?
Different lenders will of course have different criteria, but there are lenders out there who classify themselves as pure buy to let specialists.
With specialist buy to let providers, the idea that you’re self employed isn’t necessarily going to be a deal breaker. The main factors they will consider are the estimated rental value the property will generate and whether this supports the mortgage.
The lender will of course ensure you have adequate income in place to keep on top of mortgage payments, but your self employed status is unlikely to be a determining factor in the lender’s decision making.
What documents do you need when securing a self employed mortgage?
Most lenders are likely to request the same documentation. Lenders will need an SA302, as well as your tax year overviews. An SA302 is a piece of documentation that states exactly how much income you are declaring to the tax office and your accountant should be able to obtain one for you.
Your tax overview works in conjunction with your SA302 and is essentially confirmation that any tax you were due to pay has been paid.
Can you apply for a joint mortgage if one of you is self employed?
If you are looking to secure a mortgage but one person is self employed and one isn’t, you will still be considered. However, due to your circumstances, your affordability may make it slightly more difficult to find a lender who is willing to accept.
For example, if you have only been self-employed for six months and can’t provide proof of income, you could still apply for the mortgage but your application will be purely based on the income of the employed individual – which can inevitably impact your affordability.
Self employed vs limited company
If you are self employed, your accounts are likely to consist of your gross turnover, the expenses you right off and your net profit. Your net profit is what a lender will use when they are deciding how much is suitable for you to borrow.
With a limited company, most directors will take a PAYE salary up to a certain level and then take dividends out of the business on top of that. Lenders will work off both the PAYE income and the dividend income to accetaine your affordability.
Some directors may not be taking all of the profit out of their business, so they may have retained profits. Some providers will also use these retained profits to help boost affordability, particularly if the PAYE and dividend amount isn’t considered a healthy sum.
Subcontractors on the Construction Industry Scheme (CIS) will likely need to take a different path to that of a generic self employed individual.
Each lender will have different criteria when it comes to sub contractors. Some lenders will deem that you are self employed and will want at least 2 years accounts but if you are a CIS contractor and you’ve worked for the same company for at least 12 months, the lender could class you as an employed individual and would therefore only need around 6 months worth of accounts to determine your affordability.
Are self certified mortgages still available?
Post the credit crisis in 2008, self certified mortgages were something that were determined to be irresponsible lending and therefore, providers no longer offer them.
How much can a self employed individual borrow?
Whether you’re self employed or not, your lending and borrowing capacity varies from provider to provider.
As a mortgage advisor, we can look across all providers and determine what they will lend based on individual circumstances. The only real difference is if you’re employed, the lender will use your gross income, if you are self-employed they will use your net profit and if you are a limited company director, they will use your PAYE and dividend income to determine your affordability.
What’s the biggest challenge for self employed people looking to obtain a mortgage?
For most self employed people and directors, keeping their takings from the business as low as possible is usually a priority in order to keep tax payments small. However, this can have a negative impact when it comes to your lending affordability.
It’s best to strike a good balance of paying a reasonable level of tax so you have a decent income to support your mortgage lending affordability.
YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE
Some buy to let mortgages are not regulated by the Financial Conduct Authority
More About Self Employed Mortgages
YOUR HOME/PROPERTY MAYBE REPOSSESSED IF YOU DO NOT KEEP UP WITH REPAYMENTS ON YOUR MORTGAGE
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