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Lewie and Rupert back from JXP Mortgages talk us through self-employed mortgages
Is it harder to get a mortgage if you are self-employed?
Lenders look at self-employed income differently depending on whether someone is a sole trade or a limited company director. They assess income in different ways – so if anything, there’s actually more opportunity for self-employed customers, providing they’ve got the track record required.
What if I only have one year’s accounts – can I still get a mortgage?
Yes, you can. Some lenders will still allow you to borrow with only one year’s worth of accounts, so it’s not prohibitive. You wouldn’t pay any extra because you’ve only got one year.
You might have slightly less choice of lenders, but there are still banks that will happily accept just one year’s worth of accounts.
Are self cert mortgages still available?
No, not since the financial crisis in 2008. There was a big review on how mortgages are provided by lenders. With self certification mortgages, essentially an applicant declared their own income, and the lender took it at face value.
This system was abused by many customers that it was not considered to be responsible lending. So in 2011 the Financial Conduct Authority ruled out self certification mortgages, and they can no longer be arranged.
Can you get a joint mortgage if one person is self-employed?
Yes, you can. It’s reasonably straightforward. The way a lender will assess you will focus on each of you as individuals. An employed person is assessed as normal with payslips and earned income.
The self-employed person is assessed according to their status, whether they’re a sole trader – where they would use just net profits – or a limited company director. For a company director the lender would either use a mixture of salary plus dividends or salary plus net profit.
Is Buy to Let available for the self-employed?
Yes, it certainly is available for the self-employed. As many people may know, assessing income is different for the employed vs the self-employed. But with Buy to Let there’s no negative impact – the same products are available and the same lending criteria applies.
On a Buy to Let, the main focus from a lender’s perspective is what the property will rent out for, rather than income and affordability.
What’s the difference between someone who is self-employed and a limited company director?
This is an area where a lot of people get confused. If you’re a limited company director, you might pay yourself a salary – so you might think you’re employed. But if you own around 20% or more of a business, lenders will still treat you as self-employed.
The major difference is that if you’re a sole trader, lenders work off the net profit you commit to the inland revenue in your tax return. If you’re a self-employed director, a lender can use either your salary plus dividends or, if you retain profits within the business because you don’t need to live off them, these can be included alongside salary. That can actually lead to a much higher level of lending.
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We’ve got customers all over the country, as we can deal with you over the phone, online on teams. So you don’t have to be based in the Sussex region to use us. We have access to the whole of the market and we’ll happily chat to you wherever you are.
How does remortgaging work for the self-employed?
There’s no difference if you’re purchasing a property or remortgaging one. It’s just a case of following the lenders’ criteria using your income. We need to demonstrate affordability – it can be as simple as that when you remortgage.
What if I have bad credit and I’m self-employed?
It’s always an interesting one for any application. Bad credit could be all sorts of different things. Some people think that they have bad credit just because they have money outstanding on a credit card – which isn’t the case unless you have missed one or more payments. On the other hand, it could be being declared bankrupt or having a CCJ.
You’re treated exactly the same if you’re self-employed or not. It’s always worth speaking to an independent mortgage advisor to assess what level of bad credit you have. It may not be as bad as you think.
How much can a self employed person borrow?
It differs lender to lender. They say a typical income multiple for the self-employed is around four and a half times their declared income. A sole trader’s income will often be a two year average of their net profits. A limited company director that has a lot of retained profits within the business could be able to borrow a lot more.
I always say to my clients that the amount you can borrow is one thing – but what you can personally afford each month is another. It’s really about working with each client to determine those two aspects and reach the right outcome.
What documents do I need when applying for a self-employed mortgage?
The best advice for anyone who’s self-employed and thinking of getting a mortgage would be to speak to a mortgage advisor first. Then you can prepare the necessary documentation and talk to your accountant about presenting those figures in the best possible light.
For some self-employed people, that could mean retaining profit in a business. It could mean not offsetting expenses to keep their profit levels higher.
If you’re a sole trader, the lenders are going to want your tax calculations, previously called the SA302 document, plus the corresponding tax year overview. As we mentioned earlier, that would generally be for the last two years – but some lenders will allow one.
If you’re a limited company director they may still want to see the same documents, plus they may also want the full company accounts as prepared by your accountant.
Is there anything else we need to consider on self employed mortgages?
Speaking to a broker is key in these situations. It would be quite daunting to go to a lender’s website directly and try and navigate their criteria. Our experience and knowledge means we can find you the best fit.
It may not necessarily mean using your self-employed income. Some people do contract work or receive income through the Construction Industry Scheme (CIS) – which we can talk more about on a different podcast. Just have a chat with us and we’ll make everything as simple and straightforward as possible.
Think carefully before securing other debts against your home.
You may have to pay an early repayment charge to your existing lender if you remortgage.
Your home may be repossessed if you do not keep up with your mortgage repayments.
The Financial Conduct Authority does not regulate most Buy to Let Mortgages.