Securing a mortgage if you are a business owner, director or self-employed may not be as difficult as you think, provided you have the right documents.
There are several lending options available to you if you are a business owner or self-employed. Every lender will have its own criteria and will asses your unique situation, and you may find that there is more flexibility or discretion taking into account any other factors that may affect the amount you can borrow, for example your credit score, the deposit you can put down and the accounts available to use as evidence in your application.
Difficulties faced by business owners
The days of self-certification mortgages are long gone. This type of mortgage required little or no proof of income, making it a very straightforward process. The rates were competitive, and although they were aimed at the self-employed, the ease at which these mortgages could be obtained was a contributing factor to the financial crisis, and they were dubbed as ‘Liar Loans’. Self-certification mortgages are no longer available and this has left those who are self employed or running their own business excluded from a portion of the mortgage market.
Although it’s not impossible to secure lending if you are a business owner or self- employed, it’s certainly a much more difficult process as lenders need to carefully assess the risk of those with a non-standard income.
Partners in a business are usually treated the same way as those who are self-employed. Lenders may also look at your share of net profit when calculating how much you can borrow.
A director of a limited company may have income from both a basic salary and dividend payments. Lenders will consider both of these elements depending on your share of the ownership.
A director of a limited company may have retained the profits within the business, rather than taken out as salary or dividends and some lenders may be prepared to consider some retained profits.
In theory, self-employed borrowers have access to the same range of mortgage products as everyone else provided you have the necessary deposit and can prove they will be able to meet the repayments.
There are a handful of specialist lenders who offer products designed specifically with the self-employed in mind. Mainstream mortgage lenders routinely lend to the self-employed too, so you may not need to use a specialist.
If you are self-employed, you will need to prove your income by way of supporting accounts or an accountant’s reference prepared by a qualified accountant. The standard requirement is 2-3 years’ proof of income, but in some circumstances you may find some lenders will accept one year. Most lenders will take self-employed earnings into account if you can produce a SA302 (tax return) form which you will have if you file your taxes by self-assessment. If you have permanent employment, but have additional income, this could be classed as self-employed income and is likely to be treated in the same way.
If you are a business owner or self-employed, it’s beneficial to do the following:
- Keep all accounts up to date
- Use a certified accountant to file your accounts
- Ensure you have your SA302 to hand – hard copies can take few weeks to arrive. Lenders will now accept accountants tax return and online print off of your tax year overview that can be obtained from the HMRC web portal.
- Retaining too much profit within the business could restrict the amount you can borrow so try and plan ahead when considering the dividend payment. Most lenders will take an average of the last 2 years’ income.
- Switching from a sole trader to limited company can have an adverse effect, so get advice before you do this. Some lenders will accept this however they are likely to request a full years accounts on the limited company to be produced.
- Keep an eye on your credit rating and make sure you retain a good score.
At the Mortgage Hub we can search the market to find a the right mortgage deal for you, and can look at the more complicated affordability calculators that lenders use to work out how much a self employed person or business owner can afford to borrow.
Speak to one of our independent mortgage advisors for impartial help and advice, as well as access to the widest selection of competitive mortgage deals in the UK.
The Mortgage Hub is an independent mortgage advisor serving the greater Glasgow area. Whether you are planning to buy your very first home and need the right first time buyer mortgage, or are looking to re-mortgage due to a house move or to growing family – we understand your journey is so much more than a financial process, it’s a journey to achieve your dreams, improve your lifestyle and achieve your true potential.