Preparing and planning
for a mortgage.
Too many self-employed people (and directors of small companies) are unnecessarily being turned down for mortgages – why?
Until late 2007 you didn’t have to prove your income because you could choose a “self-cert” mortgage. Unfortunately, as we all now know, this sort of lending resulted in the financial crash, almost all lending being closed down for several years and the banks having to be bailed out.
To get a mortgage, what you now have to do, in all cases, is prove your income. For the self-employed (directors with more than 20% equity are considered self-employed) this means providing 1, 2 or 3 year’s SA302’s as submitted to HMRC, or accounts and personal bank statements.
But the good news is, if you can show enough income it’s usually cheaper than renting because there are hundreds of great, low interest deals out there - but you might have to prepare well in advance to meet today’s stringent lending conditions. Finding the right lender and the right deal can be like looking for a needle in a haystack.
What mortgage lenders like to see in a self-employed application are;
1... Preferably stable or increasing profits over the past couple of years.
2... some want to see three years accounts, but will calculate affordability on an average of the last two
3... while there are some who just want to see the last years submitted accounts and a projection for the current year, although
4... almost all lenders will want to know your employment history for the past three years.
Note: if profits are down in a specific year for a reason i.e. purchase of machinery or vehicles, this can sometimes be accepted.
So if you are an accountant meeting with clients it’s worth asking if they have any thoughts of a mortgage or remortgage in the next year or two, because if they do they’ll need their accounts, income and finances in good order.
A good mortgage broker who understands the self-employed market can advise the probable maximum borrowing available before an application is submitted and uses experience to match borrower’s requirements with a bank or building societies lending criteria.
There is a page on our website giving useful information for accountants and which covers these subjects in more detail, so please use it as a reference.