Self-employed mortgage guide
Updated: Jul 4
Self-employed mortgage guide:
In this Self-employed mortgage guide, I'll run through some information that you may need to consider if you are self-employed and may be applying for a mortgage soon.
If you're self-employed, you may find that getting approved for a mortgage can be more challenging than it is for traditional employees. If you are looking to use a mortgage broker, it's important to speak to someone that can take the time to understand your personal circumstances and approach the right lender on your behalf.
Here are some key things that may help:
Different lenders use different figures to calculate your 'income'
If you operate as a sole trader, lenders will typically consider your "net profit" as the basis for assessing your income, which is the amount you ultimately pay tax on. However, for directors and/or shareholders of limited companies, different lenders may adopt varying approaches. Some lenders will take into account your salary and dividends, while others may consider your salary along with the net profit of the business. In certain cases, lenders may even consider the company's profit before tax and add back any pension contributions you've made, allowing you to potentially borrow a slightly higher amount.
Furthermore, the income assessment process can become even more complex as different lenders have different criteria. Some lenders may calculate your income based on an average of the last 2 to 3 years' income, while others may focus on either the latest or the first year's income (if you only have one year of trading). This variation adds an additional layer of complexity to the process.
For fixed-term contractors who are also self-employed, there is a possibility that lenders may consider your "day rate" when calculating your income. Typically, the day rate is a higher figure than the business profit, which can be beneficial in determining your borrowing potential.
More documents may be required
As a self-employed borrower, you'll need to provide more extensive documentation to verify your income and financial stability. This may include tax returns, tax calculations, bank statements, and other financial records that demonstrate your ability to repay the loan.
You may need to work with a specialist lender/broker
While most traditional lenders offer mortgages to people that are self-employed, you may find that your best bet is to work with a specialist lender who has experience working with self-employed borrowers. These lenders understand self-employed borrowers' unique challenges and can offer more flexible underwriting criteria to help you secure a mortgage.
The time to get approved may take longer
In some cases, lenders may require further information not always requested upfront, this can take the form of things like an accountant's reference, management accounts or business bank statements.
Hopefully, this self-employed mortgage guide has helped you, if you require any further information, please do get in touch.
At MRG Private Clients, we understand that self-employed borrowers have unique needs and goals when it comes to getting a mortgage. We will spend time going through your personal situation and use our experience to find you the best options available to you.