Self Employed Mortgage

What is a Self-Employed Mortgage?

A Self-Employed Mortgage refers to the process of obtaining a mortgage for individuals who are self-employed. While there is no specific mortgage product exclusively for self-employed individuals, most standard mortgage products are available to them. However, the application process for self-employed applicants may involve additional lender criteria and can be more challenging when it comes to proving income compared to employed applicants.

Assessment of Self-Employed Mortgage Applications

When you apply for a self-employed mortgage, your application is primarily assessed based on affordability. In addition, you need to have a good credit history and provide evidence of your earnings. Most lenders typically require at least two years of certified accounts (prepared by an accountant if you handle your own taxes) and, in some cases, a tax return (SA302). Some lenders may have a minimum trading period requirement of around two years for self-employed applicants, although it may be possible to obtain a mortgage with just one year of accounts.

Requirements Based on Business Type

The type of business you operate will determine the amount and type of evidence you need to provide:

  1. Sole Trader: Lenders calculate the loan amount based on the average of your declared total net income over a period of two to three years. You will need to provide copies of your SA302 forms for those years. Some lenders consider the average income, while others may use the most recent year if your income has been increasing year on year.
  2. Partnership: As a partner, your share of the net business profits is used to calculate the loan amount. If you own at least a 25% share, your application will be considered based on your share of profits from the last two or three years.

Limited Company: For limited company directors or shareholders with over 25% ownership, lenders usually consider salary and dividend payments as per the last two or three years’ tax returns. Some lenders may also take into account the applicant’s share of retained net profit in the business, although this is more common with specialist lenders.

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Borrowing Capacity and Deposit Requirements

Being self-employed does not impact how much you can borrow, except for how much of your income lenders will consider. The loan amount is primarily based on your total income and affordability, along with your credit rating. Lenders typically use a multiple of four and a half times your income, although this can vary depending on various factors such as profession and credit score. While there is no minimum deposit requirement for self-employed applicants, offering a higher deposit can increase your chances of acceptance. Lenders often offer lower mortgage interest rates when deposits of 10%, 15%, 25%, or 40% are provided.

Improving Your Chances of Acceptance

To enhance your chances of being accepted for a mortgage as a self-employed individual, consider the following:

  1. Increase your income: Taking a higher percentage of dividends prior to your application can increase your usable income and provide the opportunity to save a larger deposit, improving your chances of acceptance.
  2. Delay major business changes: Lenders prefer stability, so it’s advisable to delay any significant business restructuring until after your mortgage application.
  3. Financial preparation: Ensure all your accounts are up to date and certified by an accountant. Submit all tax returns before your mortgage application to present a professional image and save time during the process. Additionally, work on improving your credit rating in advance by managing your finances responsibly and making timely repayments.

If you need assistance with your self-employed mortgage application, Multibroker can provide guidance on the best time to remortgage, explore suitable deals for your circumstances, and help you navigate the application process.

Get in touch with us today to discuss your options and find the most suitable mortgage solution.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE

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