Self Employed Mortgages

Self Employed Mortgages

It’s often a misconception that it’s hard to get a mortgage if you’re self employed. A large percentage of the clients we deal with on a daily basis are self employed. If you have the verified income to support the level of borrowing that you need then it should be no more difficult than if you’re an employed person. 

Lenders will always require evidence to support your income. This can normally be done in 2 ways. Either by providing copies of your SA302 documents that can be obtained from HMRC or Tax Computations via your accountant. Or some lenders like to request an accountants reference. 

With self employed mortgages we can consider the following situations:

  • Minimum 1 years trading accounts
  • Lending based on latest years finalised accounts
  • A company showing a decline in profits
  • Up to 6x salary with specialist lenders
  • Using company profit rather than your personal income – LTD Co. Directors

A Mortgage With Only 1 Years Accounts

Self employed people who have been trading for 12 months and have 1 full years accounts, there are lenders that can consider a mortgage application. You will also need to have your own personal self assessment submitted to HMRC.  

The way that self employed income is typically evidenced is by providing your SA302 or Tax Computation. The accompanying Tax Year Overview will also be required. This is a very niche area. However, there are options available for you. 

Soletraders, affordability will be based on your net profit figure. Therefore, any income that you offset as expenses to reduce your tax bill cannot be used. 

Limited Company Directors, affordability will be based on your salary plus dividends. 

Lending Based On Latest Years Finalised Accounts

As businesses grow, your own income is likely to increase. It’s quite common that mortgage lenders will want to take an average of your last 2 or even 3 years income as a self employed person. However, there are a number of lenders that will use your most recent years accounts to assess mortgage affordability. In fact some will even use an accountants projection for the coming year. 

Company Showing A Decline In Profit

Running a business is not easy. You may find that some years you earn less than others. There can be any number of reasons why you may not make as much profit one year as you did previously. 

Declining profits are often frowned upon by a mortgage lender. Thankfully there are also lenders out there that can take an open minded approach to assessing an application. This means just because a business may show a decline in profits, there may still be a lender that can have a positive view of the business and any mortgage application linked to it. 

Borrowing Up To 6x Salary With Specialist Lenders

Sometimes, when you see the house you love it can seem out of reach. However, we work with a small group of lenders that specialise in lending high loan to income multiples. This is a particularly niche area with some lenders prepared to consider 6x income as a mortgage. In fact, there are some lenders who do not take the income multiples approach to underwriting and will assess each individual case on it’s own merit. Looking at it from a pure affordability perspective. 

In these kind of situations, they are regarded as specialist cases and, as a result, interest rates may reflect this. However, it can provide a solution in a situation that seemed impossible. For this type of lending, a very good credit score will most likely be required along with a good sized deposit. 

Using Company Net Profit Rather Than Personal Income - LTD Co. Directors

For directors of limited companies there is another option when it comes to mortgages. There are some lenders that will consider a company’s net profit figure plus directors salary to assess mortgage affordability. Rather than the traditional salary plus dividends approach. 

Why would that be helpful? 

For directors who run businesses that profit more than they are paying themselves, this can make a huge difference to the maximum loan. If a company is healthy, performing well and retaining profit in the business, then this can be a great solution.