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mortgages for self employed

Mortgages for Self Employed

Mortgages for Self Employed


 
The self employed are generally defined by Mortgage lenders as people who are responsible for paying their own tax and national insurance.Self employed can be sole traders or partners in a business. They will also include Limited liability Partnerships and Limited company directors
 
People who own a sizeable stake in their own Limited company are also classed as self employed. A limited company is owned by the shareholders. Mortgage lenders will typically ask what percentage shareholding is owned by the applicant.
 
If the shareholding is above a certain threshold - normally 20 - 25% then lenders take a view that the companies fortunes are inextricably linked to those of the applicant.
 
If the shareholding is below 20% then mortgage lenders will often treat the applicant as an employee. The proof of income for an employee would normally be up to 3 payslips plus most recent P60.
 

Proof of income for self employed mortgage applicants


 
Typically mortgage lenders require 2 or 3 sets of accounts.
 
For a sole trader or partnership, it is the net profit figure from the profit and loss account that is used in the income calculation. The net profit figure is arrived at by deducting the business expenses from the total income. If the business is a partnership then the profits are shared in proportion with the percentage ownership
 
Most lenders will average the net profits over the last 2 or 3 years. Some lenders will use the most recent years net profits
 
Lenders may raise a query if the profits have fallen sharply.
 

Mortgages for directors of a limited company

Directors of a limited company are strictly speaking employees of that company. To determine how mortgage lenders will view you will depend on your shareholding. If you own over 20 -25% then lenders will generally regard you as having a controlling interest.

If you own a lower percentage then you may be regarded as an employee and your income will be determined by your salary plus any bonuses.

If your shareholding is substantial, you may well draw a directors salary plus dividends. Most lenders will assess your income as the sum of your salary plus dividends in the most recent tax year

If you do not draw all of your profits as dividends then we have lenders that will consider salary plus net operating profit. Please contact us to discuss further

Directors loans have to be paid back so will not qualify towards your income

Mortgages with one set of accounts

 
You can get a mortgage with one set of accounts.
 
Please contact us to discuss which mortgage lenders will lend with one set of accounts
 
The income on the accounts must be sufficient to cover the mortgage loan.
 
For a sole trader, it is the net profit figure from the profit and loss account that is used. Mortgage lenders will lend up to 4x's the net profit figure. For a joint mortgage application it will be up to 4 x's the joint income.
 
For a limited company, the mortgage lender will look at both the directors salary plus the dividends drawn. The dividends drawn should not exceed the net operating profits of the limited company
 

Mortgage deposit for self employed


 
With a minimum 1 full years accounts, the lowest deposit required would be 15%. Better rates and terms are available if you can increase this deposit.
 
Lenders tend to offer different rates at increments of 5%. So you will get better rates with a 15% deposit than you will with a 10% deposit