Can self-employed people get a mortgage?
We look at the self-employed and answer some questions we usually get from self-employed clients wishing to raise a mortgage.
According to the Office for National statistics in April to June 2012, there were an estimated 4.2 million people in the UK who were self-employed. This represented 14% of the 29.4 million people in employment. Compared with employees self-employed people tended to be older with a higher concentration of men!
Many of our clients and many of the new enquiries we receive are from people who are self-employed.
How is my income treated for lending purposes?
Where sole traders/LLP’s or partnerships are concerned lenders will generally only accept a client’s net income after all expenses have been offset. For Ltd companies we have a bit more flexibility as lenders will use salary and dividends but we can source finance factoring in retained profits too. Short term contractors can secure mortgage finance too, lenders will look at the current contract and will base their decision to lend based on contract history, current contract length and experience. It would be easier to secure finance for an IT contractor with 3 years’ worth of 6 month contract history than it would be for someone who had just started contracting and on a 6 month contract, but each case is based on its merits and we know which lenders to approach.
How many years self-employed income do I need to have to be able to get a mortgage?
The accurate answer is 1 year with 1 year’s figures submitted to HMRC. There are a handful of banks and building societies who will lend to clients with 1 years accounts although the lenders credit score will be a bit more restrictive and it would not be unexpected for a client with 1 year’s accounts to have to put in more of a deposit than someone who is employed.
Will a lender use my projected earnings to determine the amount I can borrow?
No. A lender may ask for your accountant to confirm your projected income to back up an application where maybe only 1 year’s income figures are available but they will not base the lending amount on the income confirmed in the projected earnings.
Can I get a Buy to let mortgage if I am self-employed?
Yes. We can source finance for people who have only just started self-employment. The market for Buy to let finance is not as restrictive and lending will be based on the potential or current rent a property receives.
Consider an offset mortgage if you are self-employed and you place money aside for tax each month in readiness for your annual tax bill. By offsetting your cash in a savings account against the mortgage account you can save £1,000’s in interest!
Fox Davidson can secure finance for clients who are self-employed paid via a trust, paid in a currency other than GBP and the more complex the situation the more determined we are to find a solution. Contact us with your enquiry and put us to the test!