Who better to provide self-employed people with mortgage advice than a real estate agent who has experienced it themselves. Gemma Bennett will guide you through the process from her unique perspective as a mortgage broker and self-employed borrower
As a self-employed person, it can feel like you still have to jump through a number of ‘hoops’ to get your mortgage.
I know this feeling well, because I have been self-employed all my working life and have had a number of mortgages during that time.
I haven’t always worked in the mortgage industry and there was a lot I didn’t know before then. If I had known, I might have found the process easier.
And because I now work regularly with self-employed clients as a mortgage broker, I also fully understand the lenders’ needs and processes: why they do what they do and what we can do to drive the outcome.
I’ve seen both sides of the coin firsthand and I’m grateful to be in that position so I can help you prepare, understand and hopefully make what can feel like a bumpy road just that little bit smoother with my industry insight.
As I say in all my mortgage-related articles, lenders vary their criteria much more than I had ever known before. This is fantastic because where one lender is not suitable, another may be.
It offers space for innovation and individualized suitability. However, it also means that when giving advice I have to be relatively generic and ask you to bear in mind that there may be exceptions to the guide below that a mortgage adviser can check for you on a personal basis.
WHO qualifies as a self-employed applicant?
- Sole proprietorships
- Directors of limited companies with more than 20% to 25% share ownership
- Some contractors – if the tax is not paid at source
This means that even if you receive a salary from your limited company, you will be assessed as self-employed if you own more than 20% to 25% of the shares.
Prepare in advance
Most lenders require the last two years of self-employed accounts to understand your annual income.
Most will look at these accounts and take an average of the last two years’ profits, after expenses but before taxes.
If your last year is lower than the average, they will take the lower amount into account.
So, understanding what your average number looks like will give you a better understanding of your income level as seen through the lender’s lens.
It is true that some lenders may take the latest figures instead of an average, but this gives you less choice of lenders and products.
It is standard to request three months’ worth of both business and personal bank statements. This is so that the lender can assess whether the income stream is still in accordance with what has been stated.
Be on top of your tax returns
Leaving your tax return to the last minute before the deadline could result in your accounts being too “old” to be valid. Most lenders require that the latest accounts be no older than 18 months.
For example, if your last set ended on April 5, 2023, it will be too old from October 5, 2024. Yet the deadline for filing online with HMRC isn’t until January 2025. It’s an easy trap to fall into.
My advice is to get your returns organized as soon as each tax year ends. This way, all your figures are always up to date and valid for use by lenders.
HELP the lender understand your business
The biggest revelation for me when I became a mortgage professional was that lenders actually Doing want to lend you – even to the self-employed.
That sounds obvious, but it doesn’t always feel that way.
In fact, they want and need to understand your business, your setup and how things work. The more you can offer to help them understand your position, the more secure they will feel in lending to you.
I hope this has helped you and given you some insight.
Having your own business is personal and everything about it feels personal, I understand that from my own experience. May you feel empowered as you go about your business and with your mortgage needs, now and in the future.
Gemma Bennett is a senior mortgage advisor at The Mortgage Mum
You can connect with Gemma via email [email protected] or on her website, here.
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