Being self-employed can be viewed as a barrier to getting a mortgage but with an experienced Mortgage Broker in Hull working with you that need not be the case. The first thing that you need to be aware of is that there are no uniform lending criteria for sole traders and Limited Company Directors – each lender has their own individual policy and the amount they will allow you to borrow can vary massively.
Let’s take sole traders (or partners) first. The amount you can borrow for a mortgage will be based on your net profit which you can evidence by obtaining your SA302’s from your Accountant or direct from the Inland Revenue. Most lenders average your last 2 or 3 years’ net profit but there are lenders 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 want an explanation as to why it has dropped.
If you are a Limited Company Director who owns 20% or more of the shares in the business then the lenders will class you as self-employed and similar rules 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) + declared dividends, once again evidenced by way of SA302’s. There can be occasions where a Limited Company is performing well in terms of net profit but the Directors are not drawing their dividend – these type of applications can be disadvantaged in terms of maximum borrowing capacity because there is not as much income that can be declared. All is not lost though because there are lenders out there that will consider using your share of the net profit rather than salary + dividends.
The minimum trading period for Self Employed or Limited Company Directors is one year although there are lenders who want longer 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 in the same line of work.
As you can see from the above, mortgages for the self-employed is a complicated business so if you would like to talk about your situation please feel free to contact us and we’ll talk you through your options and send you a form for your Accountant to complete which will help us tailor-make a recommendation designed to meet your exact circumstances.