What is a Self Employed Mortgage?Self employed mortgages are no different to any other mortgage. As a self employed applicant you will have access to the same products as everyone else. However finding the right mortgage for a self employed applicant can be challenging, because mortgage lenders treat self employed applicants as higher risk and as a result finding the most suitable lender can be tricky.
How Will your Self Employed Application be Assessed?If you are self-employed you will either be a sole trader, partner in a company, contractor or a limited company director. Depending on what category you fall into will determine how a lender might assess you.
If you are a sole trader, you or an accountant will calculate your income using self-assessment and have your tax calculated by HMRC. You can then ask for an SA302 form or tax calculation and overview which the mortgage lender will require to assess your income.
If you’re in a business with someone else, lenders will only look at your individual share of the profits. This will need to be proven via the SA302 form or tax calculation and overview.
For a limited company, mortgage lenders will look at your finalised accounts. Many lenders take your income as the stated salary and dividends, but some providers will also include your net profit. This usually means you can borrow more.
If you are a contractor then the requirements from the lender can be different. Some mortgage lenders will treat you as self employed and require the tax overviews and tax calculations. For CIS contractors, other lenders can potentially look at pay or remittance slips for the last 3 months
How Many Years do you have to be Self Employed to get a Mortgage?
There are many misconceptions when surrounding how long you have to wait before you can apply for a mortgage if you are self employed. Certainly the majority of lenders would like 2-3 years accounts, however it is possible to go lower than this with some lenders.
Can I get a Self Employed Mortgage with 1 Years Accounts?
The majority of mortgage lenders will ask for 2-3 years trading history to be in a position to offer you a mortgage. However, it is possible to obtain a mortgage with just one years accounts and in most scenarios you will need a specialist mortgage lender. That is where using a mortgage broker can save you time, applying to the right lender straight away.
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How Much Can I Borrow If I am Self Employed?The borrowing ability for a self employed applicant from mortgage lender to mortgage lender is night and day. There are some lenders in the mortgage market offering more favourable terms for self employed applicants and as a result the borrowing ability can increase significantly. The key is knowing which lenders can offer you the best borrowing amount. That’s where a mortgage broker comes in. A mortgage broker will have access to the whole of the market and will know which lenders suit your needs as a self employed applicant.
Can I Get a 95% Mortgage Self Employed?Yes you can get a 5 per cent deposit mortgage, even if you’re self-employed. Some lenders are happy to lend to self-employed mortgage applicants at 95% loan to value (LTV). Whether a lender will lend to you at 95% does not solely rely on your income, other factors can also play apart. Some lenders have restrictions on the type of property being purchased and restrict LTV on other elements of a mortgage such as interest only. There are not many lenders offering 95% mortgages currently. If you can put down a bigger deposit you will have access to a wider range of lenders and the cheaper interest rates.
How are Self Employed Mortgages Calculated?Self employed mortgages are calculated via an income calculation called loan to income. This gives the lender a base figure of how much you can afford to borrow. A general starting figure is 4.49x your annual income. Some mortgage lenders will offer higher multiples for self employed applicants. This could be because your annual income is above a certain figure, or the mortgage lender offers a professional client product. This calculation will give you a base borrowing figure for the mortgage lender to start with. Any dependents or debts you have will then be taken into account to give the final figure for you.
Recently Changed From Sole Trader to Limited CompanyYou may have recently changed from sole trader to limited company to become more tax efficient. As a result you may only have 1 years accounts or less. In this scenario, there are some mortgage lenders that would be willing to offer you a mortgage. Lenders will require confirmation that you have stayed in the same line of work and will ask for evidence of your earnings from the past two years.
Is it Hard to get a Mortgage if Self Employed?
From our experience it certainly is harder to get a mortgage if you are self employed and you decide to do it all yourself.
Unfortunately there are many mortgage lenders who are not set up to deal with self employed applicants. Fortunately there are lenders that love self employed and want to help you get the mortgage you deserve. The hard part is finding the right mortgage lender.
That’s why a broker can be so important in helping you find the right mortgage for you. We a re proud to have access to mortgage lenders offering bespoke product to our clients to help clients like you achieve your objective.
How Can I Improve my Chances of Getting a Self Employed Mortgage?
You need to ensure that you have a good credit score. If you have bad credit you will find it more difficult to find a lender willing to offer you mortgage deals.
Make sure that you get all of your paperwork together, all of your tax calculation, bank statements, incomings and outgoings, three years of accounts and do not forget your SA302 forms.
Save up for a bigger deposit to boost your chances of being accepted onto a mortgage. The market is tough at the moment and the bigger the deposit you can offer the better your chances will be.
Seek expert help from the likes of a mortgage broker. We are here to help and offer our expert knowledge of the whole of the mortgage market.
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