17-03-2021

The COVID-19 pandemic has hit most, if not all, businesses hard, particularly the self-employed.

We’ve put together these top tips to help you with your mortgage as a self-employed person or sole business owner:

  1. Lenders can view your income in a few different ways, so speaking with a broker about how income can be assessed is vital.
  2. Some lenders may look back over the last three years, so have three years’ accounts and self-assessment tax calculations at the ready.
  3. As we are nearing April (the end of the tax year), it’s worth speaking with your accountant now in order to be able to submit accounts or your self-assessment tax return as soon as possible.
  4. At present, lenders have varying income multiples and loan-to-value caps for self-employed applicants. Some are more conservative than others, so if your bank cannot lend, speak with a broker, as another bank may be happy to lend. 
  5. Check your credit file.  A good credit score is vital and simple adjustments such as updating all accounts to your current address and making sure you are on the electoral roll may improve your score with little effort.
  6. All lenders will ask about how COVID-19 has affected your business.  Have a think about this and discuss it with your broker.  If you have taken any Government assistance, let your broker know as soon as possible, as this will have an effect on your ability to borrow – it’s best to get this covered off at the start of the process. 
  7. If you are a contractor, we can use your contract income rather than your net profits to calculate affordability.
  8. If you are a professional, we can look at income multiples of up to 5.5 times income. 
  9. As a rule of thumb, lenders work on the basis that the more you earn, the higher an income multiple you can borrow.
  10. If you work in a role where, theoretically, you can work to age 75, there are high street lenders who can take the mortgage term to this age.  This can help to maximise the amount you can borrow as they can apply a more generous calculation to your income.

Can you get a mortgage with 1 year’s worth of accounts?

Yes, it is possible to obtain a mortgage with just one year’s worth of accounts.

Specialist and even some highstreet lenders can look at one year’s company accounts or your first self-assessment tax return.

At Fox Davidson, we specialize in mortgages for the self-employed. 

Applying for a mortgage as a company director

Lenders can assess your income in two ways.

They will usually look at the salary and dividend you draw each year.

Fox Davidson do, however, have access to a number of lenders who can base their affordability assessment on your salary plus your share of net profit.

This often works out more favourably if you are retaining some profits in your business each year. 

Mortgages for self-employed without accounts

If you are a sole trader without formal accounts, it’s still possible to obtain mortgage finance.

If you submit self-assessment tax returns to HMRC, these can be used to evidence your income.

Lenders will look at your net profit figure for affordability.

Most lenders will take an average over the last two years, but Fox Davidson have access to lenders who can look at the latest year’s figures. 

Self-employed mortgages: how much can I borrow?

Lenders will currently lend up to around five times annual income for most self-employed applicants.

If you are a high earner, they may stretch this to 5.5 times income.

If earnings are lower, then lenders will generally restrict lending between 4.5 to 4.75 times income. 

Mortgages for self-employed contractors

Fox Davidson have access to lenders who can look at the daily rate on a contract rather than the income from tax calculations or accounts, which can enable you to maximise your borrowing capacity. 

Fox Davidson

Fox Davidson is an award-winning team of property finance consultants. To discuss your property funding requirements, please email enquiry@foxdavidson.co.uk or call us on 0117 989 7950.