Many can see the concept of being self-employed as a barrier when it comes to credit, especially when it’s getting a mortgage. With the help of an experienced mortgage broker in Hull working by your side, that doesn’t have to be the case.
The first thing that you should be aware of is that there isn’t a specific uniformed style of lending criteria for sole traders and limited company directors. Each individual lender has their own policy that is unique to them and the amount they will allow you to borrow can largely differ to that of another lender.
Looking at sole traders (also known as partners), the amount that you will be able to borrow for a mortgage will be an amount based on your net profit which can be evidenced by obtaining your SA302’s from your accountant or directly from the Inland Revenue.
You’ll find that the majority of lenders average your last 2 or 3 years’ net profit but there are lenders out there that can consider using your latest year. Your SA302 cannot normally be more than 18 months old. If your net profit has decreased the lender will usually go off the latest year and will require you to provide them of an explanation as to why this has happened.
If you are a limited company director who is in ownership of 20% or more in company shares, then in the eyes of mortgage lenders, you will be classified as self-employed and similar rules will apply as above in terms of averaging. The figure that they tend to average will be your salary (typically this can be equivalent to the tax-free allowance) plus declared dividends, once again evidenced through the use of SA302’s.
You’ll find that there are different circumstances where a limited company may be performing well in terms of net profit, but the directors are not drawing their dividend. These type of applications can often face hurdles when it comes to the maximum borrowing capacity, as there is not as much income that can be declared by the applicant.
It’s not the end of the road, however, because there are lenders out there that will consider using your share of the net profit, rather than salary plus dividends.
The minimum trading period for people who are self-employed in Hull or limited company directors is one year, though in some cases there are mortgage lenders who will want to see more than that. If you have recently formed a limited company after a period as a sole trader, under the advice of your accountant, then there are lenders who can look at this as long as it is within the same field of work.
As you can see from the information listed, obtaining mortgages for the self-employed can easily be seen as difficult business, though the hardest part is simply evidencing your income. If you would like to talk about your situation please feel free to Get in Touch and we’ll talk you through your options, as well as send you a form for your accountant to complete. This will help us tailor-make a recommendation designed to meet your exact circumstances.