Self Employed Mortgages

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Self Employed Mortgages Podcast

Being self employed and not receiving a set PAYE salary from your employer each month doesn’t mean you can’t secure a mortgage. Despite what most people think, it isn’t necessarily harder to secure a mortgage if you are self employed compared to someone who is employed by a separate company.

With the right guidance, documents and lenders to hand, you will have the utmost chance of success with your mortgage application – even with your self employed status.

Can I still get a mortgage with one years worth of accounts?

Typically, most lenders who offer self employed mortgages will need at least two years worth of accounts in order for them to assess your affordability. However, if you are new to self employment, you may only have a year’s worth of accounts to show a lender – if this is the case, some lenders will accept just one years worth along with further affordability evidence.

For example, if you have moved into self employment from a previous employed role in the same field, then a lender may use your P60 and previous income to assess your affordability on a self employed mortgage.

What documents do you need?

Having the right documents prepared for your mortgage application will make your process go a lot smoother.

The most common documents you will need in order for your affordability to be assessed upon applying for your mortgage are:

  • Tax calculations
  • Tax overviews
  • Business accounts

If you are a sole trader, your net profit will be the main way a lender will assess whether you can afford monthly mortgage payments.

If you are a limited company director, you will usually take a salary as well as dividends, both of which can be used to show a lender your affordability. If you keep some of the profit you make within the business, you can also use this retained profit to prove your affordability.

Limited Company Directors

There can be a lot of confusion when it comes to the difference your type of self employment has on your mortgage application and whether being a limited company director actually means you are self employed.

If you are a limited company director, you are essentially employed by your limited company. But if you have at least 20-25% stake in your limited company, then lenders will class you as self employed and therefore, will require all the same information and documents as someone who is deemed as ‘self employed’.

How much can you borrow?

Generally speaking, when it comes to self employed mortgages you can borrow up to five times your income. Some lenders will go up to six times your income if you are a young professional in a doctor or solicitors role where they know that your income is going to be increasing over the next few years.

You will also potentially be able to borrow more from a lender if you are a high earner at a young age, because lenders know your income is likely to increase and you’re going to be able to afford the mortgage payments comfortably – which is the most important thing in the long run.

Construction Industry Scheme (CIS)  Subcontractors

If you are a CIS contractor, you are effectively self employed and will therefore be looked upon as any other borrower who is self employed.

Some lenders will use your net profit figure to assess your income, however some specific lenders that we deal with will use your gross profit which can mean you are eligible to borrow more.

Self Certified Mortgages

You can no longer access a self certified mortgage after they were banned by the FCA in 2011 due to their irresponsible lending element. Essentially you didn’t have to prove the income you informed the lender you were earning, they lent to you based on your word which is incredibly risky, so they were eventually banned.

Joint applications where one is self employed

The lender’s main concern is whether you are jointly able to cover the repayments on your mortgage.

You’ll need to prove your income which is slightly more complex than PAYE applicants.

Buy To Let Mortgages for the self employed

Your income is assessed differently than for a standard mortgage and your personal income is less relevant.

There is a wide range of acceptance criteria that all applicants wanting to apply for a buy to let mortgage need to consider.

Your home may be repossessed if you do not keep up repayments on your mortgage.

Commercial mortgages and some buy to let mortgages are not regulated by the Financial Conduct Authority