Work patterns have been changing for several years now. The number of contractors, freelancers, sole traders and limited company owners seems to be at an all-time high.
No longer would someone be expected to leave school at 18 and work for one employer all the way through to retirement.
The number of customers working for themselves is on the rise
The rise in new engineering and digital occupations, in particular, give rise to self-employed roles and short-term contracts, but the uncertain nature of this type of work can make banks nervous about issuing mortgages.
It’s not impossible to get a mortgage if you are self-employed by any means, but it certainly is a specialist area, so here I take the opportunity to help you get prepared if you are in this position and thinking of buying a house.
How many years’ accounts do I need?
At the moment, it’s a minimum of one year’s trading, with some lenders wanting a minimum of two.
The reason for this is that because so many businesses fail in the first year, banks aren’t willing to take on that level of risk.
How is my income assessed?
Most lenders take the average of your last two years’ earnings, but some go off the latest year, which could be good news for you if your profits are increasing.
I’m a director of my own limited company – does this mean I’m employed?
Yes and no. Yes, you are employed but no, the lenders do not assess you as an employee unless you own less than 25 per cent of the shares.
Most lenders add your salary to your declared dividend to calculate your annual earnings, with the odd one using net profit (this can be good if your business retains some profit).
My net profits don’t reflect the true picture of my business – what can I do?
This is a familiar question, but there’s not much that can be done – your mortgage application is assessed on the income declared (net profit or salary/dividend) to HMRC.
If you want to get a mortgage then you need to have paid some tax.
How much deposit do I need?
This is the same as an employed applicant –a minimum of 5 per cent, although it may be more if you only have one year’s accounts.
Will a bigger deposit help me?
The more deposit you are able to put down, the better deal the lender is likely to offer you and you will have a wider choice of lenders. In terms of the maximum mortgage that will be made available to you, however, it doesn’t make a massive difference.
I’m a contractor – am I treated differently?
Yes, you can be. Lenders do seem to like contractors at the moment and if you’ve built up a good track record, then the lenders can consider taking your “daily rate” and applying a multiplier to this rather than your net profit. I have seen lenders offer bigger mortgages to contractor applicants using this method, especially for IT contractors.
Can I self-certify my income?
Unfortunately, “self-certs” were widely abused in the pre-credit crunch days and there is no sign of this type of mortgage returning.
Taking out a mortgage as a sole trader, partner or company director can certainly be more complicated than it would be for an employee.
Some lenders are more flexible than others and, it’s a good idea to have your UK Moneyman self-employed mortgage expert on your side early on in the process so you have realistic aspirations from the start.
Long gone are the days when your local bank manager could “take a view” on your circumstances just because you are a loyal customer.
The lenders lean increasingly upon their computerised credit scoring systems and, like lots of things, it’s just knowing where to look – which is the job of your UK Moneyman self-employed mortgage expert.
Why not discuss your self-employed mortgage options with your UK Moneyman mortgage advisor today.