We often get questions about getting a mortgage and being self employed so we thought it a good idea to put everything together that you may need to know when it comes to Self Employed Mortgages.
There can be conflicting information on Self Employed Mortgages that people have received or seen elsewhere or after having an application declined.
The idea of this little series of posts is to explain what is classed as self employed, why the information you receive may be conflicting, what is available in the current market and what options you may have.
What do mortgage lenders class as self employed?
Self Employment for mortgage purposes usually falls in to one of the following categories:
- Limited company director (usually with 25% or more shareholding),
- Sole Trader,
- Contractors.
As a limited company director you will usually be an employee of the company, but many mortgage lenders will treat you as self employed if you own 25% or more of the companies shares. A common question at this point of the conversation is “What about if I give/sell my shares to….” the problem here is that there could be tax liabilities and also if the Mortgage lender does a companies house check (which some do as standard), it could cause further problems.
Self Employed Mortgage Market
The current Mortgage market for self employed applicants is as good as it has been for probably over a decade. Following the recession in 2007, the market closed up and it hit self employed applicants harder than most.
Over the next couple of years as the market opened up, it was slow at opening up for self employed applicants. A couple of years later, Mortgage lenders began to realise that applicants who had been put out of work during the recession were actually going self employed in order to make a living as they could not find work elsewhere. This led to a boost in the Mortgage products available for self employed applicants.
Over the last 4-5 years this market has improved year on year to the point where we can now look to help applicants with as little as one years trading but also things like decreasing profits, dips in income if you have 3 years accounts, large jump in profits and so on. Whilst all of these may not be at the very best rates, it is unlikely to cost significantly more if you have less than 2 years figures or there is a dip or spike in income which shows how far we have come in the last few years.
Mortgage options for self employed
This is probably where the conflicting information comes in and not all of it may be correct as the way Mortgage lenders assess your income can vary.
In the main, the high street banks look at 2 years accounts/figures. From there they will generally use an average of the last 2 years assuming the income is level or increasing.
However, there are lenders who will look at mortgages for self employed with 1 years accounts.
For other self employed mortgage, other lenders will need a minimum of 3 years accounts. Further still, some lenders will average the income from your self employed accounts, some will use the latest figures and some will use the lowest whilst others will use entirely different justifications depending on the figures provided.
There is very little that is standard once you get beyond 2 years increasing figures and this is why it is crucial to work with a Whole of Market Broker that can find the best deal for your circumstances without you getting multiple declined applications when going it alone.
This is why I thought it would be useful to make a couple of posts in order for you to be able to determine where you fit and what income figures you should be looking to use for your income in order to get the largest mortgage possible or the better rates.
How we can help?
We are Whole or Market Mortgage brokers. We have access to around 70-80 lenders (possibly more). We have experience placing cases most likely from people in similar situations to yours. We know lenders who are open to “doing a deal” for the right case. There is a great example in the one years accounts post where we managed to not only get the customer normal rates, but the best deal (which includes rates and fees) on the market for what he wanted despite it not fitting criteria.
We discuss likely products up front. We put in the ground work to ensure the application goes as smoothly as possible. We treat your mortgage research and application like it is our own. The last thing we want to do is spend an hour or 2 submitting an application and checking documents if the application is going to get declined.