Self Employed Mortgage

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What Self-Employed Mortgages Are Available?

What is a Self-Employed mortgage?

There are not any specific Self-Employed mortgage products available and there is actually very little difference in mortgage availability for Self-Employed applicants, as they have access to most of the products that employed people have. 

The difference lies in how Mortgage Lenders assess applications for Self-Employed applicants, who usually have to provide more proof of income, than PAYE applicants. 

How will Self-Employed applications be assessed?

As with any other mortgage applicant, your application is assessed in terms of affordability and creditworthiness, however, the requirement to prove your income is more arduous. Most lenders will also require that you have operated for at least two to three years before you apply, although specialist lenders will accept as little as twelve month’s trading history for applicants in some professions.

Certified accounts, bank statements, SA302s and tax records are the types of information regularly requested, although the type of Self-Employed business you operate has an impact on which exact documents you’ll need to supply as evidence:

Sole Traders

You will usually need to supply your SA302 forms for the past two to three years so that lenders can calculate an average of your total net income for that period. Your loan amount will then be based on this figure.

Partnership

Partners need to own at least 25% share of the business in order to be classed as Self-Employed for mortgage application purposes. Your share of the net business profits for the lender’s defined duration will be used to calculate your loan.

Ltd Company

As a Limited Company Director, lenders are only usually willing to consider personal income, including dividends,  for the loan calculation. Rarely, specialist lenders may consider the net business profits alongside your income, depending on the circumstances.

How much can I borrow?

The fact that you are Self-Employed, in itself, should not impact how much you can borrow. If you are able to meet the lender’s qualifying criteria then you can expect to borrow between three and five times your annual income.

The multiple used to calculate your total loan will depend upon your creditworthiness, as well as real terms affordability (income minus outgoings). Those in higher income professions, can sometimes borrow higher multiples of their salary, providing they are in a stable industry.

What deposit will you need?

The minimum deposit requirement will depend on the mortgage product, but will not differ for Self-Employed applicants. A 10% deposit is usually expected as minimum, unless you use a home ownership scheme.

As lenders tend to decrease their interest rates the more deposit you offer, it will benefit you to offer more, if you can afford to do so. It can also help you secure a mortgage if you have a lower credit score.

How do you improve your chances of being accepted by a lender?

Increase your personal income

If you operate an LLC, taking a higher percentage of dividends for a year or two before you apply for your mortgage, rather than retaining profits, can make a higher loan more achievable. You could also use the extra income as a larger deposit to reduce your Loan to Value borrowing.

Delay mayor business changes

Lenders are always looking for stability, and major business restructures can cause concern in this area. If you can, delay major changes until you have secured your mortgage.

Financial preparation

Being financially prepared for your application can have a big impact on the outcome of your application. Keep your accounts up to date, ensure they are signed off by a certified accountant and plan to save towards your deposit and application fees.

Another important factor is your credit score. Improving your credit rating as much as possible in advance of your application can improve your chances of acceptance. Taking simple steps such as; making sure you are on the electoral roll, staying within existing credit limits and paying all bills in a timely manner, can all improve your score.

How can Vivid Mortgages help?

Here at Vivid Mortgages, we have ample experience in advising Self-Employed mortgage applicants and can direct you to those lenders whose acceptance criteria most closely matches your circumstances. We have access to many of the more niche, specialist lenders, who offer competitive deals to Self-Employed applicants.

Applying for a mortgage can be stressful and time consuming, especially if you‘re a busy company director. We can reduce your burden by taking on much of the communication and administrative aspects of your application, keeping you fully informed along the way.

Your home may be repossessed if you do not keep up repayments on a mortgage or other debt secured on it.  

Your Advisers

Carly Breathwick CeMap

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Soma Egan
CeMap

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Call us FREE on 01234 567890

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