self employed mortgage

Self-Employed Mortgages – are they difficult to get?

December 4, 2018 3:35 pm Published by

It is widely claimed that it’s harder to get a mortgage if you’re self employed.  Whilst there may be elements of truth to this, it is not much harder 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 Ltd.

What is a Self-Employed Mortgage?

Self-employed manThe first thing to note is that 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 do need to assess income a bit differently to mortgages for self-employed.

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.

How is my income assessed?

Income is typically assessed on the basis of average profits for a sole trader over the past 2 years or 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 or 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 as 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.

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 lending with a more flexible approach to maximum ages could be of benefit.
  2. If your most recent year’s profits have been higher than previous years then some lenders will work off the most recent year which can maximise the amount you can borrow.
  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.

Help and Advice

Mortgage Style Ltd is an independent mortgage broker, specialising in harder to place mortgages such as those for self-employed.

If you need help to locate a suitable provider or just want to understand the amount of mortgage you may be able to obtain give our friendly team a call on 01275 370360 or 0117 907 0818 or you can email us for a free initial consultation.

 

 

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This post was written by Marcus Robinson

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