I’m Self-employed & I Want a Mortgage
Applying for a mortgage is a daunting task for all of us and with the self-certification mortgage no longer available, the self-employed can be left to feel even more vulnerable than employees.
The reality is that a self-employed person now has access to the same mortgages as an employed person. Some lenders may market themselves as specialising in mortgages for the self-employed but most will routinely grant the required funds to self-employed people, so in most cases there’s no need for you to consider using a specialist.
Any lender will, of course, want evidence to verify the income a self-employed person declares. Different lenders will have different criteria but typically, they will ask a self-employed person for the following:
An Accountant’s certificate, the past two or three years’ accounts; or the past two or three HM Revenue & Customs’ forms SA302 and corresponding Tax Year Overviews.
For sole traders, the banks will want to take a close look at what profits the business makes and in the case of partners, their share of the profits.
For directors of limited companies, the banks will look at the salary they take from the company and the company’s profits, or they will look at the salary and the dividends they receive.
To give sole traders, partners and directors the best possible chance of successfully applying for a mortgage, this guide looks at the things you need to do to have the best possible chance of successfully getting that mortgage.
A successful business
Your potential lender will want to know that you have run a profitable business for the period for which they have requested evidence. They will be looking for a business that has steady or growing profits rather than for profits that fluctuate in dramatic fashion from year-to-year.
Banks will also probably want to take a look at the balance sheet in the business’ accounts. If assets exceed liabilities, this can be a tell-tale sign of a business that is in a strong, healthy position.
If you don’t have the number of years of accounts or tax returns behind you that you need, you can still get a mortgage. Some lenders may be prepared to look at contracts and jobs you have planned for the future. They are also likely to have more confidence in you if you’ve only just left employment in the industry in which your business operates.
Tax bill versus mortgage
Unless you’re trying to sell your business, we tend to drive down profits to minimise our tax liability. However, be wary of the impact this can have if you want to get a mortgage.
Keep your records in order
Make sure your paperwork is in good condition. Handing over shabby, crumpled paperwork will give the bank the impression that you are not well organised and that you are not professional.
Keep it up to date
Banks aren’t fond of draft figures, so it is important to get everything finalised and filed before applying for finance. You will also need to make sure that the accounts or tax returns are as up to date as possible; and they should be no older than 18 months. A bank will look at your personal circumstances and that of the business, so make sure you’re up to date with payments for loans and credit cards etc.
Keep your credit rating clean
Whether you’re employed or self-employed, a good credit history is always important and the bigger the deposit you have, the better your chances of being successful, the broader the range of mortgages available to you and potentially the lower the borrowing costs. If you have or have had a mortgage in the past and you had a good track record, the banks are likely to look upon your application far more favourably - and you will also almost certainly have some equity.
Whatever your employment status, a mortgage broker or independent financial adviser can be incredibly useful. They can walk you through the process, help with the application and find mortgages that you wouldn’t come across yourself. They may also have some experience of which lenders might be more flexible if business owners don’t have the required number of accounts or tax returns for example.
How to get the SA302
The SA302 is essentially your tax computation, so it will show your taxable income and how your tax liability has been calculated.
HM Revenue & Customs (HMRC) used to post a SA302 on request, but have now withdrawn this service.
Instead, taxpayers must login to their personal tax account and print the SA302 and the Tax Overview themselves. Do not lose your login details as it can take seven working days to replace them. If you’re new to HMRC’s online services, it can take up to 10 working days to activate the service.
HMRC is also increasingly using 2-Step Verification. This is an additional security feature which helps to prevent unauthorised access of someone’s personal tax account, even if they have their User ID and password. To log-in to your personal tax account, you will need your log-in details and HMRC will send a one-off access code via text message to your nominated mobile phone number that you will need to enter.
Use an accountant
Some lenders insist that accounts are prepared by an accountant and sometimes stipulate what qualifications they must hold, so bear that in mind if you’re looking to appoint someone to help you. If you can’t access your personal tax account or you need the figures urgently, an accountant may be able to help you in several ways:
If an accountant has compliant software, they may be able to produce the SA302 for you; or can prepare the accounts or tax returns that the bank is asking for; or can complete the Accountant’s Certificate.
We can help
The provision of financial advice within the mortgage industry is regulated, but we can recommend mortgage brokers and independent financial advisers.
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