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mortgages for self employed

Self Employed

Mortgages for self employed

The self employed are by their nature entrepreneurs who have the drive and ability to convert an idea into reality. They are to some extent in control of their destiny and may stand to profit markedly from the fruits of their business.

Statistically though the odds are against them, most new businesses fail within the first two years of trading. This fact has caused many mortgage lenders to take a cautious view of the self employed, often imposing a minimum period of trading. Traditionally the self employed would have to produce 3 sets of accounts before a mortgage application could be considered.

Since 1979, self employment in the UK has risen from 7.4% to 13.3%. Mortgage lenders have recognised this growing market, and there is now a number of lenders competing with each other for market share. This competition has forced lenders to review their lending criteria such that it is now possible to achieve a mortgage with a 15% deposit with just one years accounts

Mortgage lenders used to calculate their maximum lend based upon a multiple of your net profits. More recently. most lenders use affordability calculators which take into account the number of people in your household, your age and any credit commitments you have

As a guide, you may find that your maximum borrowing is about 4x's your net profits. So if your net profits are 30k then you may be able to borrow about 120k. For a better indication of maximum loan please complete our fact find.

To find the best deal for your situation, please phone us or complete our fact find with your requirements.

Mortgages for Sole traders or Partnerships

The easiest way to set up in business is as a sole trader or a partnership. You should inform the Inland Revenue that you have started trading and you will have to submit annual accounts to the Inland Revenue.

You will be liable to pay tax on your net profits.

If you are a sole trader, mortgage lenders will use the net profit figure as your income. So, if your gross income is 100k, your expenses 40k, your net profit would be 60k. It is the 60k that would be used by mortgage lenders as your annual income.

Mortgage lenders will generally request sight of your last 3 years accounts. Typically they will average the last 2 years profits or use the most recent years profits if profits are declining.

If your net profits have been decreasing then lenders may query why this is happening.

Accounts that are progressively declining tell the lender that your business is in recession and your future income may be unreliable.

In a partnership, the lender will use your share of the net profits. So if you have a 50% share in a partnership and the partnership generates net profits of 80k, your share will be 40k.

You do not need to employ an accountant. If you complete your own accounts, your income will need to be confirmed by Inland Revenue documentation.

We can arrange a mortgage with just one years accounts. You will need a minimum 15% deposit. First time buyers welcome

Please complete our fact find.

Mortgages for Company Directors

A limited company is regarded as a separate legal entity. You will be regarded as an employee of that company.

The limited company will have to file accounts with Companies House on an annual basis. These accounts should be audited by an accountant

Although technically an employee, a company director will often be viewed by mortgage lenders as self employed if their shareholding exceeds 20% or thereabouts. Directors with a shareholding less than 20% can apply for a mortgage immediately as an employee.

There are some tax advantages to trading under a limited company.

You may prefer to draw a small salary with the bulk of your income in company dividends.

Generally lenders will regard your income as the sum of your salary plus dividends.
Mortgage lenders will want to view your company accounts to check that the dividend payment is affordable and that company profits are likely to continue.

TAKE CARE - Most lenders base their lending calculation on the amount you actually draw out from the company. If you do not draw out the profits in the form of dividends then most lenders will simply base their calculation on the actual salary plus dividends you drew out.  Please contact us if this is your situation

Reducing profits or a low profit year may require an explanation.

We can arrange a mortgage with just one years audited accounts. You will need a minimum 15% deposit.

Please complete our fact find.