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James Roberts joins the Mortgage and Protection Podcast to tell us all we need to know about mortgages for the Self-Employed.
Is it harder to get a mortgage if you are Self-Employed?
If you’re Self-Employed you can get a mortgage, but only a couple of high street lenders and a few specialist lenders may consider an application. Most lenders will want two years worth of accounting evidence, however, some will consider looking at one year’s worth. Some of the specialist lenders only deal with Mortgage Brokers.
Are Self-cert mortgages still available?
No, they haven’t been available for quite a number of years.
What documents do I need when applying for a Self-Employed mortgage?
For Self-Employed applicants, most lenders will want to see three years worth of tax calculations and tax year overviews, commonly known as SA302 forms. More recently, lenders have asked for the last three months’ business bank statements as well. This is as a result of COVID, as they want to make sure that businesses are trading at levels that have previously been shown on those tax returns and tax calculations.
Some lenders will accept accounts instead of tax returns, although accounts can sometimes be several pages long and are a bit trickier for lenders and underwriters to assess. It’s a good idea to have your accounts or your tax returns up to date and be prepared to provide the last three months’ business bank statements as well.
Can you get a joint mortgage if one person is Self-Employed?
Yes this is possible. If the income from the Self-Employed person is not required because the employed person earns a sufficient amount to borrow the amount that’s required, then the lender might not even need any evidence from the Self-Employed person at all.
If not, it just goes back to if the Self-Employed income is required you will need to provide the tax returns and the taxi overviews.
Is Buy to Let available for the Self-Employed?
Yes, definitely. With Buy to Let properties, how much you can borrow is primarily based on the property itself and the rental income that can be received. Some lenders do have a minimum income requirement, as they like to see that there is a personal income, just in case there aren’t any tenants in the property for a length of time. Again, that would require the tax return and the tax year overview.
Whether somebody Self-Employed, unemployed, a contract worker, or even retired, mortgage lenders want to see your tax return if you’re an existing landlord, to see what rental income is coming in. You could be an employed person, but if you’ve got a Buy to Let property with rental income coming in, that’s a form of Self-Employed income, so you still need to provide evidence through a tax return to show that you’ve declared that rental income.
What is the difference between someone who is Self-Employed and a Limited Company Director?
When people say Self-Employed, they’re probably referring to either a Sole Trader or someone in a partnership, whereas a director can often be employed. If it’s their sole business, they might be the 100% shareholder of their own business and the way that the income is looked at slightly differently, if you are a Sole Trader or a Partner, then it is the net profit of the business that is looked at.
If you are a director of a limited company, it usually comes down to what percentage shares you have in that business. The lender will then lend money based on what you pay yourself as a salary and the dividends that you take out of the business. A couple of lenders will lend on your salary and the retained profit that the business holds, which might be more than you would have paid yourself as a dividend.
You’ve also got Limited Company Directors that might not hold that many shares, and they will be just treated in the same way as somebody that’s employed. A 20-25% shareholder or more is classed as Self-Employed.
How much can a Self-Employed person borrow?
As a general rule, once the lenders have established an income figure, the calculation that most lenders use for how much you can borrow would be the same whether you are employed or Self-Employed. There are perhaps a couple of lenders who might ask for a slightly different level of deposit for being Self-Employed, but the actual affordability model usually is around the same whether or not you are employed or Self-Employed.
How do you prove your income?
If you have an accountant, you might have your accounts audited for you. Some lenders will accept an accountant’s certificate, which is where the accountant completes a certificate and returns it directly to the lender on your behalf.
People who complete their own tax return, the tax year overview is commonly used, and most lenders will work off an average of last two years, but would like to see three years, to show any trends of how the business is running, and these days, the last three months’ business bank statements may be needed as well.
How does Remortgaging work for the Self-Employed?
A Remortgage is just a different type of mortgage that happens to be for the property that you’re currently living in, rather than for a new property, so there’s not really any difference.
One thing of note currently is that Covid has led to job loss for many, so if those people have chosen to switch to Self-employed work, they might not have a substantial enough trading history. In this case, Mortgage Lenders will offer a product switch or a product transfer.
If you’re with a lender and you don’t want to borrow any more money or change the names on the deeds, they will offer a new product for you that routinely doesn’t require any proof of income at all, because you’re already with that lender and you are already paying the mortgage payments to them. As long as you can justify that you can still afford to maintain those payments, you don’t usually need to provide any evidence of your Self-Employed income.
If remortgaging isn’t an option, a new deal with your current lender may be better than going on to the Standard Variable Rate.
YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE