What Income do Mortgage Companies look at Self-employed
What Income do Mortgage Lenders Look at for the Self-Employed?
What counts as self-employed?
Lenders will see you as self-employed if you own more than 20 – 25% of a business and it is your main source of income. Self-employed mortgage applicants will need to prove their income to lenders by providing up to three years’ of accounts when applying for a mortgage.
The self-employed category you fall into will depend on how you prove your income – do not forget that lenders will also look into your credit scoring. You will also need to ensure you have a good credit rating when applying for a mortgage in order to access the lower rates.
As a Sole Trader, you will need to provide mortgage lenders with your Tax Calculations and Tax Overview forms (SA302 forms). This will show the lender your income as well as the tax you have paid, many lenders require for you to use a chartered accountant for this.
If you are part of a partnership, you will need to evidence your share of the net profit from the partnership. The accounts will show the net profit of the partnership, but the lender will be interested in the percentage of this which is your income. The lender will therefore want to see your Tax returns (SA302) and Tax year overview to see what you have declared as share of net profit from the partnership and the tax paid on that profit. Lenders will often look at the last 2 years figures and take an average. Though some specialist lenders may consider most recent year’s figures if it is an upward trend.
Limited Company Director
As a Limited Company Director, you will need to prove your Director’s salary through either the full company accounts or your tax calculations (SA302) and Tax Year Overviews. If you pay yourself dividends you will need to declare these too. Not all lenders will accept retained profits towards your mortgage calculation so if you want this included you may need a specialist lender.
If you work through contracts, you will need to show details of these as far back as three years, as well as for any upcoming work too. Mortgage lenders will want to see that you have paid tax and will take into account gaps in contracts too so it is best to keep these at minimum. Lenders will be looking for stability in your contract history, or a reasonable period of time left on your current contract to reassure them on the likely consistency of your income and ability to maintain the mortgage payments.
Do self-certification mortgages still exist?
Self-certified mortgages were banned in 2009, these mortgage products allowed self-employed borrowers to take out a mortgage without proving their income. It led to mortgages on the market which were expensive and charged high rates of interest due to the risk involved. A lot of mortgages were taken out that could not be repaid.
There are plenty of lenders out there who are becoming more and more flexible towards self-employed people and understanding their streams of income. There are plenty of options out there if you are a self employed mortgage applicant, and our Mortgage Brokers are on hand to give you expert advice.
How do you go about obtaining a mortgage if you are self-employed?
Getting a mortgage if you are self-employed can seem daunting but it does not have to be, you just need to make sure that you are prepared. You will need to gather all the documents needed to prove your income as well as the standard documents such as:
- Driving license
- Bank statements
- Utility bills
- Council Tax bills
You need to make sure that you have a good credit score before applying for a mortgage to ensure you are making the most out of your income. If you have bad credit this can affect the amount that you can borrow. It can be worth paying off any debts that you owe before applying for a mortgage and getting your finances in order.
You should speak to an accountant and make sure that your taxes are all in order and paid accordingly. They can also help when it comes to applying for a mortgage and making the most out of being self-employed. They will also be able to explain more about the tax implications involved.
Our Mortgage Brokers can help explore the right options for you and find mortgage lenders who specilaise in self-employed applicants.
How can a Mortgage Broker at Yellow Brick Mortgages help you?
Here at Yellow Brick Mortgages we have access to the whole first-charge mortgage market meaning we can access mortgage deals that are not available on the high street. We are an appointed representative of The Openwork Partnership, who are authorised and regulated by the Financial Conduct Authority meaning we are qualified to give the mortgage advice you seek.
Applying for a mortgage when self-employed does not have to be stressful and we are here to help gather all the documents you need and prepare your mortgage application. We will listen to your specific circumstances before hand picking appropriate lenders for you. Get in touch with a member of the team today and take the stress out of your mortgage search.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.