Self Employed Mortgage

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Self Employed Mortgage

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Is it harder to get a mortgage if you’re Self-Employed?

There’s a bit of a misconception from the general public that being Self-Employed makes it harder to get a mortgage. There are certain complexities when applying for a mortgage if you’re Self-Employed, which is why it’s always helpful if you have a broker to guide you through the process. 

Mortgage Brokers  understand the way that different mortgage companies treat Self-Employed applicants. They’re all very different in the way that they underwrite applications and they all have very different requirements from Self-Employed people. If you were to try and deal with that without prior knowledge of the mortgage market, you could quite easily be left feeling that it’s impossible to get a mortgage if you’re Self-Employed.

As an adviser specialising in mortgages for Self-Employed people, I don’t personally feel it is particularly any more challenging than it is for an employed person, because I understand the market and I know where to take my clients if they’re in those circumstances.

How many years do you have to be Self-Employed to get a mortgage and what if I only have one year’s accounts?

Across the board, the vast majority of Mortgage Lenders would want two years trading history, but we’ve got access to a selection of lenders that are quite happy to assist Self-Employed people who have only one year’s accounts.

Are self certified mortgages still available?

They stopped being available around the time of the credit crunch in the late 2000s. 

What sort of documents do I need to apply for a Self-Employed mortgage?

When you’re applying for a mortgage, first and foremost, no matter whether you’re employed or Self-Employed, there are some standard documents that are always needed. That would be ID (passport, driving licence), utility bills or council tax bills and three months bank statements.

If you’re Self-Employed, evidence of your Self-Employed income would be using what’s called tax computations, which are historically known as SA032 forms from HMRC.

Accountants can now usually provide a document called tax computation. We also need the tax year overview, to accompany the tax computation document. The tax year overview document is a summary of what your outstanding tax liability for the year is.

Lenders do often refer to the tax computation and tax overview for underwriting Self-Employed income, but there are other ways to evidence income. An accountants reference or accountants certificate is becoming more common in supporting an application, which is where the Self-Employed person’s accountant completes a reference that will summarise their income. That’s commonly used for Limited Company Directors.

Can you get a joint mortgage if one applicant is Self-Employed?

When you apply for a joint mortgage, if one of the applicants is Self-Employed, then their income will be underwritten or assessed in the same way it would be if it was a sole application for a Self-Employed person, that ultimately the income is assessed based on the individual. Each applicant’s income will need to be assessed individually

From an employed person’s standpoint, income is typically assessed with payslips. From a Self-Employed person’s standpoint, it’s assessed with the documents we mentioned earlier. If one of the applicants is Self-Employed, it doesn’t really affect things too much, so long as the documents to evidence their income are available.

Is Buy to Let available for the Self-Employed?

Buy to Let mortgages are definitely available for the Self-Employed. The vast majority of Mortgage Lenders underwrite Buy to Let mortgages based on the rental income that the property will receive, rather than the income of the applicants. There are some lenders that don’t have a minimum income requirement or even some lenders who don’t require an income.

In terms of the income status of the applicant, whether you’re Self-Employed or employed, it doesn’t really affect Buy to Let too much. Some lenders have a minimum income requirement of around £25,000, but generally, whether you’re employed or Self-Employed, there will more often than not, be an option for you.

It’s important to consult with a broker who is able to give you good advice in that area and help you get the right mortgage or certainly the most suitable mortgage for your circumstances.

What is the difference between someone who is Self-Employed and a Limited Company Director? 

Traditionally the term Self-Employed referred to a Sole Trader, effectively a person that works for themselves, they’re not registered as a limited company. Limited Company Directors also fall into the bracket of being Self-Employed for mortgage purposes, although if you spoke to an accountant about that, they would argue that a Limited Company Director isn’t Self-Employed, because they work for the limited company.

Mortgage Lenders, however, look at both Limited Company Directors and Sole Traders under the Self-Employed bracket, across the board. Sole-traders have a net profit, which is the business income figure after expenses have been deducted. Salary and dividends for a limited company director are drawn from the net business profits.

How much can a Self-Employed person borrow? 

If you’re Self-Employed, that doesn’t generally mean that you’re not going to be able to borrow as much as an employed person. Being Self-Employed shouldn’t be of any detriment to your loan amount, when applying for a mortgage.

In some circumstances, it actually goes in the other direction, because if you’re a Limited Company Director and take in your salary and your dividends out of a very profitable business, you have control over your own income. You could choose not to take a large salary or more dividends for tax purposes, but there are a few lenders that will actually let you use your share of the company’s profit figure rather than just the salary and dividends, which can make an enormous difference when applying for a mortgage.

If company directors have got a very profitable business, their affordability can be really enhanced. This is a niche area of lending, but we can help you to source those lenders that will consider this.

How do you prove your income if you’re Self-Employed?

The traditional way is the SA302 documents or tax computations. Also, we have the option of the accountants reference or accountant certificate, which is more commonly used for the limited company directors. 

In some circumstances we may need copies of the company accounts, particularly if a share of company profits is being used.

How does remortgaging work for the Self-Employed?

A mortgage application for any type of mortgage isn’t really different whether you’re employed or Self-Employed. The last year has been a bit more problematic for certain Self-Employed people, where their industries have seen a reduction in profit or in turnover.

Covid may have been severely detrimental to income in the last tax year, however, a number of the lenders have introduced criteria that if you’ve been detrimentally affected by covid in the last 12 months, they allow you to use an average of the previous two years income, rather than the most recent year that was affected by Covid. Bank statements will be needed to evidence that the Self-Employed person’s income is now back where it needs to be.

How can a Mortgage Broker like Fifty Nine Financial help me?

If you’re new to being Self-Employed and you want to get a mortgage, certainly speak to one of our advisers. If your application is anything outside of  the classic traditional employed person with clean credit, it’s advantageous to speak to an advisor. So if you’ve got any adverse credit or you’re a Self-Employed person or a contractor, it’s important to seek help. 

Criteria varies so dramatically from one Mortgage Lender to the other, that if you try to do that on your own, it’s very possible that you’ll find yourself disappointed. But more often than not, there are more options than you think, no matter what your circumstances might be.