Self Employed mortgage advice
There is no doubt that obtaining a mortgage is harder now than it ever has been and this is particularly so for anybody who is self-employed.
Gone are the days when the self-employed could self-certify their income and obtain a mortgage. Now all income has to be proven and for the self-employed this, in effect, means income on which tax has been paid and not the amount they draw from your business.
Self-employed mortgage advice
When you apply for a mortgage the self-employed mortgage lenders will look assess your application, a process known as underwriting. Self-employed mortgage underwriting. Below are some bullet points that will help you get through the underwriting process involved when applying for a mortgage if you are self-employed.
Plan ahead
If you are looking to obtain a mortgage in the future then you need to start planning now, most lenders will require the last 2 or 3 years accounts which they will use to calculate the amount they are prepared to lend. If you cannot supply these accounts then obtaining a mortgage be extremely difficult if not impossible as lenders are very particular when granting a mortgage to anybody who is self-employed.
Pay your dues
Lenders will only consider income that has been declared to the taxman, so obtaining a mortgage and avoiding tax is no longer possible. If you are a sole trader/partnership then a lender will use your net profit. If you are a director holding at least 20% of limited company's shares then the lender will use the combined amount of your dividends and director's salary or net profit as shown on your tax return.
You will need a SA302
The HMRC will issue this form as proof of income declared, and tax paid, to the taxman for a particular year. You will have to request this form and it can take weeks to arrive, so plan ahead as you will need to have the forms before you apply for a mortgage.
Getting your priorities right
When you are self employed your accountant will legitimately work to reduce your tax bill but when you are trying to get a mortgage you need to show enough income to secure the loan amount. Reducing the amount of tax you pay can have a detrimental effect on the amount of mortgage you can obtain.
Getting the right lender
Some lenders are more accommodating than others when dealing with the self-employed. I would always use a professional mortgage broker to obtain the best mortgage for your circumstances as they will be able to calculate how much you could borrow and the best lender to approach to obtain your mortgage.
The above article was produced by Dean Mason - Cemap, Cert PFS. Practice Principal at Masons Financial Planning
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