According to a recent study, it was revealed that 77% of self-employed workers believe that their work status will make it more difficult to be approved for a mortgage.
The main challenge faced by self-employed borrowers is the way that many mortgage lenders calculate affordability, as this is based on the average profits made by the borrower over the last two to three years.
We’ve asked Paul Hinchley-Bradshaw, Senior Property Finance Specialist to help answer some common questions that have been queried from self-employed applicants, and to give his advice on how to secure a mortgage if you are self-employed.
Over to Paul…
Since the pandemic, many self-employed people have seen much higher profits in the last year than the previous couple of years, with research suggesting that around a fifth of self-employed people have said that their business has made over a 10% profit increase in the last year than the preceding two years.
We have come across a number of challenges for our self-employed applicants. Below I have listed some of our most asked questions when it comes to being eligible for a mortgage whilst self-employed, to hopefully help ease some common worries and concerns:
How long do I need to be trading for before I can apply for a mortgage?
With most lenders, you will need 2 years of trading with 2 years’ personal tax returns that are completed before being able to apply for a mortgage. However, a few lenders are able to consider an application with just 12 months trading and 1 year’s personal tax returns submitted to HMRC. Depending on your profession, there are a small number of lenders that will even consider less than 12 months trading, but these typically tend to be for applicants who are medical professionals.
What income can I use?
Different lenders take different views on this, with some being able to use either your share of the net profits plus salary. This can be calculated on your share of net profit before taxation or your share of net profit after taxation, but again this is dependent on the lender. Other lenders will calculate your affordability based on your salary plus dividends. Our advisers will be able to collect all of this information in order to advise which option will work best within your needs and requirements.
Will my loan to value be restricted?
Most lenders have now returned to their self-employed loan to value criteria inline with the PAYE market, however a small amount have retained a restricted loan to value criteria for self-employed.
Will any loans taken through COVID impact my affordability?
Although most lenders don’t request information on support during COVID, if a loan was taken and currently evidenced on your accounts, some lenders will deduct this from the net profits for affordability purposes.
How we can help
At Signature we don’t feel that it has to be the case that self-employed borrowers have issues in securing a mortgage. We base our research on lender criteria’s, that support each self-employed applicant’s circumstances.
If you are self-employed and would like to discuss what your mortgage options might be, we are here to help. To speak to one of our specialist advisors, get in touch here.
