When it comes to being Self Employed and needing a mortgage this can often be more challenging than being employed. Most mortgage lenders will only ask for the last 3 months payslips when you are employed. However the self employed find themselves needing at least 2 years trading before many lenders will even consider them.
As a mortgage broker and also self employed I wanted to share some top tips to help you all understand what’s needed if self employed and wanting a residential mortgage.
Sole Traders & Partnerships
- Annual “Net Profit” – Mortgage lenders will use your annual “Net Profit” (before tax) which is filed with HMRC.
- Declining Net Profit– Lenders generally do not like a decline in profit from year to year, if you earned £17,000 in 2017 and & £10,000 in 2018 they would use the lowest figure rather then taking a average.
- Trading time usually a minimum of 2 years– Most lenders will need at least 2 years figures and will take the average over 2 years. A few lenders will use your most recent year if your net profit has increased. Also a few specialist lenders will lend with 1 years trading however their interest rate may be higher.
- Proof of Income – as proof of your income most lenders will ask for a copy of your SA302 (also know as tax year overview) which shows your turnover, net profit and tax breakdown for the year. This can be obtained from your online gateway HMRC account or if you have an accountant they can provide this too you. HMRC will also send you a copy after you have filed a tax return. Lenders may also need your “tax calculation” for each of the 2 years, this can also be obtained in the same way.
For limited companies the same top tips apply as above the only difference would be the figures used for the affordability are different. As long as the director holds more the 20% shareholding they are treated as self-employed and Salary and Dividends will be used.
For example if you are paid £20,000 a year salary and £10,000 dividends a year (also know as remuneration) your annual figure the lender would use is £30,000.
In some cases, if you find your net profit is more then your salary and dividends. There are a few lenders who will use your net profit and not your salary and dividends.
Hope you have found this of some use. If you find you want a mortgage re-view or have a mortgage related question, please call me on 07809622109 or email email@example.com
I’m based in Stansted and like Cheryl I am also a working mum juggling life, family and work.
Rosemount Mortgage Planning
Zacey Sell CeMAP – Mortgage & Protection Adviser