Mortgages for the self-employed
Getting a mortgage if you are self-employed might be easier than you think. One of the misconceptions about the mortgage market is that it is now very difficult for self-employed people to borrow in order to buy a home. It’s certainly true that one type of mortgage used by the self-employed in the past is no longer available – but for many self-employed people, their chances of being able to borrow are still just as good as anyone else’s.
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.
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.
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.
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.
Whether you are a sole-trader, a partner or a company director, there is a process by which you can obtain a mortgage. In the case of sole traders and partners the main criteria considered is the individual’s net profits while for company directors it’s their salary and paid dividends that are looked at. Some lenders are aware that many business owners will not be drawing all of the money they are entitled to from the business and so will also accept the applicant’s share of net profits and salary.
Most mortgage lenders will look at the income received over the last two or three tax years and either average it out or take the most recent year as a basis for calculation.
There are certain traps that self-employed mortgage borrowers need to watch. For example, your accountant will see it as part of his job to minimize your tax bill using legitimate methods to reduce your taxable income – but this could count against you when applying for a mortgage. Also, many self-employed people also earn money through the PAYE system, which can make their business income seem lower.
For these reasons – and given the other challenges they may face when applying for a mortgage – it’s really useful for self-employed workers to take impartial and expert advice on getting the best possible mortgage deal.
Let Homeline Mortgages take the stress away from getting a mortgage so you can continue to concentrate on running your business
Here are Homeline Mortgages we have highly experienced mortgage consultants that will advise you on getting the best possible mortgage to suit your needs, no two cases are the same so we will take the time to discuss your individual requirements gathering all the information required to give you the advice you need.
The main documentation to prove your income is either an accountant’s reference or your SA302 form showing your tax calculations from HMRC. In the case of the accountant’s reference then it must be a qualified accountant and different lenders will require different levels of qualification. Obtaining your SA302 tax calculations from HMRC is by far the most common process and in reality is quite easy. It can be ordered by phone and will usually be faxed to you (or us) on the same day. They can also post them to you although this usually means a wait of about ten days. You can, of course, download the SA302 from your online tax portal but this format tends not to be accepted by most lenders.
Ordering your SA302 from HMRC
You will need your:
- National Insurance number
- Date of Birth
You may also need:
- Tax Ref No
HMRC phone number: 0300 200 3310
Or log into your online account at https://online.hmrc.gov.uk/login