Mortgage Options for the Self-Employed
With Millions of people in the UK opting for self employment it seems a shame that self-employed people in the UK do not have the same choice of mortgages as people who are employed. However with a wide choice of mortgages available in the mortgage market today there should be no reason why a self-employed person can’t get a mortgage.
With the demise of the self cert mortgage self-employed borrowers can face months of negotiating with lenders to secure a mortgage, with strict criteria governing the information need to satisfy a lender newly self employed people face the toughest task. Self employment may not necessarily mean an individual owning their own business they could be low paid manual workers, high-paid IT professionals, journalists or artists.
Tip:
Self-employed borrowers should consider applying to a bank or building society that provides them with their business banking.
With all this in mind it is important to understand what criteria banks and building societies use to consider an application. Coventry Building Society seem to have the most favourable options for the self-employed.
Self-Employed applicants must be able to provide proof of income for a two year period which is more reasonable the usual three years although this drops to one year when the applicant is considering Buy to Let. Directors with more than a 20% share in the company they work for are also considered but directors of limited companies who have less than a 20% share are treated as an employee.
What is profit?
Most profits are defined as gross annual income as the applicant’s share of net profit before dividends any salaries paid must be deducted before arriving at net profit.
Sole Traders, Partnerships, Sub-contractors must be able to provide proof of income over a two year period at least, falling to one year for Buy to Let mortgages. The gross annual income is the net profit before dividends for partnerships.
If you have 3 years of accounts that don’t (on average) qualify you for a mortgage then you can use your last two years of accounts but you must a demonstrate a steady progression in turnover and profit or provide a accountants Certificate, so providing your accounts reflect your improving position 100% of the projection could be taken into account, If you do not even have two years of accounts then as long as the LTV does not exceed 80% then only one year’s accounts may be considered. 100% of the projection may be acceptable if the average of the single years net profit figures (after tax) demonstrate an improving position.
Bath Building Society does lend to the self employed or people using property as an investment. In some circumstances they can lend up to 95% of the property value although a large proportion of the lending Loan to Value is below 80%. There are no official products available that offer sub-prime or self certification mortgages.