Being Mortgage ready and Self Employed

This week I have been talking to lots of my clients (new and existing) about how to get their accounts mortgage ready!

And yes when you are self employed this is a real task! One that you ideally need to sit down with an accountant 12 months in advance of applying for a mortgage.

Don’t forget that mortgage lenders need an accountant to sign off on your accounts.  So, if you want to use your self employment numbers in your mortgage application, you really should have an accountant from day one.

There’s no such thing as a ‘self-employed mortgage’. You are going to get a normal mortgage, you just have to jump through more hoops to prove your income than someone who is on a company payroll.

What You Need to Get a Mortgage

The key change for self-employed workers is the need to prove your income to any mortgage lender you apply to. Most will want to see at least two years’ accounts or tax returns. The more accounts you can show the better.

You will need…

• Two years’ accounts
• An accountant
• A track record of regular work
• A healthy deposit
• A good credit history

When lenders determine how much to lend to you, they generally base their calculations on your average profit in the past few years. Lenders prefer borrowers to employ an accountant to prepare self-employed workers’ accounts. Some lenders state the accountant must be certified or chartered.  Make sure your accounts are up-to-date and in order before you apply – lenders aren’t impressed if they are presented with out-of-date figures.

If you don’t have two years’ accounts, don’t panic. Some mortgage lenders will still consider your application, especially if you can prove a track record of regular work, you have left employment to work as a contractor in the same industry, or you have evidence of work lined up for the future.

How Your Business Set-up Affects Your Mortgage Chances

When you set up your own business you have a choice of three main business structures to choose from. Which one you pick will influence how lenders view your income.

Sole trader

As the name suggests, sole traders are one-man bands. Keeping records and accounts is fairly straightforward – and you get to keep all the profits.

It’s these profits a lender will look at when assessing your income. If you do your tax by self-assessment and get HMRC to calculate it for you, you may get a form called an SA302, which shows the total income received and total tax due. Your lender may want to see this alongside your accounts, so dig it out and have it ready.

Partnership

If you go into business with someone else, you might set up a partnership. When looking at your income, mortgage lenders will look at each partner’s share of the profit. So, make sure you have accounts that show exactly how much money you made so your potential mortgage lender can easily see your annual income.

Limited company

Setting up a limited company means you keep your business separate from your personal affairs. A limited company will have at least one director and, in some cases, a company secretary.

Directors normally pay themselves a basic salary plus dividend payments. Make sure the lender takes both these elements of your income into consideration when assessing mortgage affordability.

Do you need help in becoming mortgage ready? We are here to help!

We would love to hear from you!