Securing a mortgage can be a complex process, especially for the self-employed. However, with the right preparation and help, things needn’t be so difficult.
Here are some top tips from Joe Stallard at HHH Mortgages to guide self-employed individuals to get mortgage-ready:
Get your documents in order
Randall & Payne can help with this one! Lenders will want to see proof of income, typically requiring at least two years of financial records. They’ll likely want to see your personal tax calculation and tax overview documents and then for limited companies, the full accounts too. It’s really important to work from accurate figures to get an accurate view as to what you can borrow and what it might cost.
Understanding what income can be used
Most lenders will work from your salary and dividends, however, there are a handful that will work from your salary plus your share of the profits from your limited company. This way they’re not penalising those who haven’t withdrawn available funds but do have the ability to, and would, if they had a larger mortgage.
Informing your accountant of your plans in a timely manner can really help them give you the right advice.
Consider reducing business expenses
As mentioned, some lenders can assess affordability based on net profit, so a high expense that eats into those profits may help from a tax perspective, but they may also inadvertently reduce your borrowing potential. Balance your tax efficiency with the need to show a strong income. Again, plan far in advance with your accountant and try to involve a mortgage advisor in those discussions where suitable.
Demonstrate Consistent Income
Lenders prefer predictability. They generally want to see income at a consistent or increasing level, and will ask questions if things are going the other way. Highlighting any long-term contracts or retainers with clients can reassure lenders, or where profits seem low, as you’ve invested in some equipment, then make sure you flag the reason. Seasonal income can often be explained but be prepared to show a couple of years of bank statements!
Maintain a Strong Credit Score
Just like salaried employees, self-employed individuals need a healthy credit score to secure favourable mortgage terms. Regularly review your credit report and take steps to enhance your score where possible.
Larger deposit, better rate
If possible, save for a more substantial deposit as a bigger deposit reduces the lender’s risk and can lead to more favourable mortgage rates.
Seek specialist mortgage advice
I’m a mortgage broker so I’m biased here, but working with a mortgage broker experienced in advising self-employed clients can be invaluable. They can guide you through lender criteria, identify options best suited to your circumstances, and help streamline the application process. Ultimately, we’re here to save you time and effort, whilst finding you the right mortgage deal for you.
Joe Stallard is a Director and Advisor at HHH Mortgages, a family run mortgage broker who help clients all over the UK. They offer a no-obligation conversation to anyone looking for mortgage help.
