Self-Certification. A Thing Of The Past.
Is getting a mortgage difficult if you run your own business?
Applying for a mortgage has changed – dramatically, because you now need to meet strict conditions brought in since the banking crisis. And these new conditions can sometimes make life difficult for small business owners.
I have been arranging mortgages for 20 years and it’s not that long ago that you could “self-certify” your income without the need to show accounts or other forms of proof. As long as your credit profile matched the lenders criteria and you passed other checks, you would have your mortgage. Not now.
There are 3 main areas of change:
The mortgage must be affordable, now and in the future if interest rates rise
You must show proof to back up your claims for income and expenditure
Advice can now only be given by a qualified mortgage advisor
Whichever lender you now go to you must prove your income with some or all of the following: recent accounts/accountants certificate, HMRC forms, payslips/P60 and personal bank statements showing income received. A few recent payslips on their own won’t do.
But is it all bad news?
There is amazing choice right now, with interest rates lower than we could have previously imagined, with deals even available where people with a less than perfect credit history can be considered. But as I have written above, proof of income is required and as you are in business you may leave profits in the business and take your income in different forms in order to minimise your tax liability. All perfectly legitimate but how you manage your finances could scupper your chances of a mortgage from Lender A, but be perfectly acceptable to Lender B. To know who to go to and avoid the pitfalls, preparation is the key.
Different lenders use different methods of calculating your income, with drawings/net profit/dividends and any other source of income being used in different combinations. And then there is your credit record to take into account, and any ongoing loans or credit cards with balances will restrict the amount you can borrow. The devil is in the detail and it can be complex. But by seeking advice early and making some adjustments to your finances you can boost your chances. For more information about the mortgage application procedure, CLICK HERE
What can I do?
So, what should you do to boost your chances of navigating the new rules successfully?
1... Look carefully at your finances and accounts in good time, well before you apply for a mortgage. To borrow as much as possible it will pay to cut spending where possible, over several months before an application.
2... Speak to your accountant to make sure accounts are healthy. Showing a loss is a difficult bridge to cross.
3... Pay yourself a regular income and have payslips to back it up.
4... If you think your credit score might be low it needn’t be the end because some lenders will consider past difficulties. Call me and I can advise how some simple steps might improve your credit score. To contact me, CLICK HERE
For further credit score advice and information, CLICK HERE
Unless you are applying to your own bank and are confident of success, it’s best to consider going through a mortgage broker. Whole of market brokers don’t just shop around for the lowest rates, we also know how to match your financial profile and requirements to the right lender.
A snapshot of my success boosting tips:
Get your credit report and do all you can to maximise your credit score before you begin
Cut out unnecessary spending well before applying for a mortgage
Make sure your bank statements show several months of good money management
Have at least one year’s accounts and last year’s P60 available, with the accounts showing stable or increasing profits
Think about using a mortgage broker. All brokers are paid a commission be the lenders and I don’t make any charges for my advice or the work involved in a mortgage application.
With the time it can take, if you are buying a property it can pay to have your mortgage pre-approved with a “decision in principle”. This means that subject to a suitable property valuation and the right supporting documentation, potential pitfalls can be avoided and making an offer on a property can be done with the confidence that a mortgage can be obtained.
KMA Finance is happy to give advice and apply for decisions in principle on behalf of both existing and new clients at no charge.
We also specialise in all forms of Business Protecton, CLICK HERE for more information.