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It is wrongly perceived by many that it is difficult to secure mortgages for the Self-Employed. The reality is that with early preparation and proper planning, there is no reason why being Self-Employed should stop you from your dream of home ownership.

The rules, regulation and lending criteria for self-employed applicants are constantly changing as lenders respond to the ever-evolving wider financial landscape. With this in mind, it is vital to speak to an experienced adviser early in the process to ensure that both you and your accountant are aligned on what is required in order for your accounts and tax returns to be accurate and complete ready for a mortgage application.

If you are a Sole Trader, whether that be a Freelancer, Contractor or independent Creative, then your income will be treated as your Net Profit as referenced on your latest Tax Return and summarised in your Tax Calculation (SA302) document. If you have at least 2 consecutive years of Net Profit figures then a lender will use the average of those 2 figures or the latest (whichever is lowest).

There are also lenders who will consider using only the latest year Net profit figure. This may be because you have only been trading for one year or if there is a viable reason why the latest year is more indicative than the norm than taking an average.

If you are a the Director of your own Limited Company then your income will be treated as one of the following figures:

  • Salary plus Dividends
  • Salary plus share of Net Profit

There are also lenders that will consider using Salary plus Net Profit before Corporation Tax in some circumstances.

By lending against the Net Profit figure, we are able to factor in any retained profit that you may have diligently kept within the business as working capital and ultimately achieve a higher mortgage amount than the traditional Salary plus Dividend figure would generate. Although most lenders would like to average profits across 2 years, again, it may be possible to obtain the mortgage you need with only 1 full year of accounts.

As mentioned at the beginning, it is best to talk to your adviser early in the process so that they can liaise with your accountant and gather the necessary figures upfront and advise on the best approach to take.

Mortgages for Self-Employed Myths:

Do I need to have a good credit score to get a mortgage if I am Self-Employed?

Your credit score will not have a bigger or smaller impact on your borrowing capacity than your Employed counterparts. Your credit score may impact your mortgage options in general but this is not made worse if you are Self-Employed

Do I need a higher deposit if I am Self-Employed?

This is not the case. The deposit you will need to fund will be calculated using a number of factors but not independently to do with your Self-Employed status.

Do I have to have been trading for 3 years?

No. As mentioned above, there are lenders who will consider your application with only 1 full year of trading.

If you would like an outline of how much you could likely borrow, please use our Self-Employed mortgage calculator or contact one of our team for further details.

For more information on mortgages for the self employed, get in touch.

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