In the dim and distant past (pre-2008) mortgages for the self employed, and especially the sole trader or partnership, were offered without too many questions asked. Little supporting information was required by the lenders and a self-employed person could, in many instances, simply provide an estimate of their annual profits in support of a loan application.
After the Credit Crunch in 2008 banks became much more cautious when lending money, in no small part because the UK Government clamped down on irresponsible lending which might result in borrowers being unable to meet monthly payments because their income was less than they said it was or because of a change in circumstances. Loans made on this ‘non-status’ basis were rather uncharitably christened by the press as ‘Liar Loans’.
Because of these changes, anyone that is self employed will usually be required to supply either three years audited accounts or an SA302 from the ‘taxman’ at the HMRC. An SA302 is a document issued by HMRC that proves your income based upon previous tax returns.
Most mortgage lenders define the self employed as either sole traders, partners or directors of a limited liability company. Definitions do vary.
The two largest practical problems for the self employed person looking to secure a mortgage are;
1. Most business owners do all they can do legally to show the lowest possible annual profit so as to limit their tax liability and
2. Most owners of limited liability companies will try to retain cash flow in their businesses so as to benefit from relatively lower rates of Corporation Tax.
Both these tactics might serve to reduce the real profit a business owner has available to him or her when a lender is calculating how much they will lend using their prescribed multiplier and when applying their affordability criteria.
Due to the more complex nature of the self employed mortgage applicants, different lenders apply different criteria to assessing their income. Some mortgage lenders will only look at new profit, some will take a view on profit remaining in the business and others will treat some self employed people with regular contracts as if they are employed.
It is therefore imperative that you take proper advice before making unfruitful applications to unsuitable lenders which might leave hard footprints on your credit history and further reduce your overall credit worthiness.
If you are self employed and looking for a mortgage or secured loan contact Mortgage Required in Maidenhead for an initial, no-obligation conversation.
To speak to a specialist advisor about self employed mortgages, contact us on 01628 507477 for a chat with no obligation.
Related articles:
Download our Free First Time Buyers Guide
Recent posts
The UK’s chancellor, Rachel Reeves will deliver the Labour government’s autumn budget at the end of the month, we take a look at what could be announced in relation to housing.
Most popular areas for first time buyers to buy
11 days ago
Recent research from Halifax has revealed the most sought-after locations for first time buyers in Britain.
The data which was taken from the Halifax House Price Index looked at areas outside of London where those looking to purchase their first property were buying. Despite high property prices and increased rates, these first time buyer hotspots have remained popular.
How can I look after my mental health?
12 days ago
Taking care of your mental health means looking after your emotional, psychological, and social wellbeing. There are several ways we can practice self-care that will help to improve our physical and mental health. This can help to reduce our risk of illness, manage stress, and boost our energy levels!
First Time Buyer to do List
15 days ago
Buying your first home is very exciting but it can also be very daunting which is why we have set out a “to do list” to help you get started.
Bank of England Holds Base Rate at 5%
20 Sep 2024
With UK inflation remaining at 2.2% which is slightly above the Bank of England’s 2% target, the decision was made on Thursday 19th September to keep the base rate at 5%.
Virgin Money and Hive Energy introduce new "green" mortgage product called Retrofit Boost Mortgage with the aim to help homeowners improve the energy efficiency of their home by offering cashback between £3,000 and £15,000
According to recent findings by LV= where 4,000 UK adults were surveyed, mortgage holders said that were likely to consider equity release to free up some money to take care of expenditures in later life.
A mortgage market rate war
9 Aug 2024
Following the recent decision by the Bank of England’s Monetary Policy Committee to cut the base rate from 5.25% to 5% (the first reduction seen in over four years), we have seen lots of lenders reducing their rates to remain competitive.
More information
Trusted by
