Applying for a Self-Employed Director Mortgage - What you need to know
When you are thinking about applying for a mortgage, you are going to soon realise that things are not always going to be as quick and easy as you may hope. This is true if you are employed. It is even more the case if you are applying for a Self-Employed Director Mortgage.
If you are employed, then it may be relatively straightforward to prove your income. What if you are self-employed? This can mean that the process is tricky. However, there are ways that it can be made much easier to do than you realise.
How long do you need to be trading to apply for a Self-Employed Director Mortgage?
One of the first things that you need to know is that you need to have been trading for at least 12 months to apply for and be approved for a mortgage. That said, the main bulk of lender in the market want at least 2 years’ worth of history. If you have less than 2 years accounts, you should ask an expert mortgage broker to speak to lenders who are open to a mortgage with 1 years accounts.
In an ideal world, you will be able to provide accounts that cover a full 3 tax years. However, if this is not the case for you, then you may find that a lender will accept a rolling 12-month representation of your accounts over the course of 2 years.
What do you count as your income?
When you are self-employed it can be hard to know how you can calculate your income. However, the amount that you earn forms a large part of the amount that the mortgage company will lend you.
How your affordability is worked out will depend on the type of company director that you are. It will also then depend on how much of the business you own. If you own less than 20% share of the company, lenders will generally treat you as employed and only take your salary into consideration. For Ltd Company Directors who own more than a 20% share of the business; it is the salary that is drawn + the dividends or the share of net profit. It can be really vital in ensuring you can borrow the level you need by speaking to an expert who understands the accounts, to find a lender who can give you the right amount, especially if you leave money in the business rather than taking dividends out.
Of course, this is not set-in stone and the way that it is calculated will depend on the lender that you choose. However, this will help you to have some idea on how much you are going to be able to raise with a Self-Employed Director Mortgage
What documentation will I need to provide to apply for a Self-Employed Director Mortgage?
Whilst a standard employed person’s mortgage can be proven by a payslip or tax documentation. This is not the case with someone who is self-employed. The main documentation that you will provide are your finalised accounts and/or the SA302 form which is taken from HMRC. You may also need to provide the latest 3 months business and personal bank statements. These will then be used to confirm your financial situation.
As a limited company director, your accountant may have given you advice to take a base salary up to the tax-free limit and then to take dividends for a top up on your income to keep your tax liability down. Lenders can take these two elements and count them both towards your income. In this scenario your SA302 or Tax Calculation and tax year overviews would be what the lender is looking for. The lender would most likely average your most recent 2-3 years to gain an idea of your income. Of course, if you have only been trading for less than 2 years, this can make it harder, but you are able to get mortgages with 1 year’s accounts.
An example of this would be where your company made a profit of £150k and you took salary and dividend of £50k. The lender would base your earnings on this amount and in some cases this may not be enough.
What if I retain profit in my business?
There is another way of going about this if you are not drawing as much money out of your business and looking to get a self-employed director mortgage. This is using your retained profits, usually your share of the net profit after tax plus your salary. Some lenders can even consider gross profit and salary. This can be beneficial to be able to obtain a higher lending amount than with just salary and dividends.
Applying for a mortgage is not always easy no matter what your employment status is. However, when you are self-employed, it can be harder to prove your income. It can also be hard to show the lender that you are a responsible borrower and someone who will make regular payments.
This means if your profits were £150k but you only drew £50k salary and dividend, instead of using the dividends you could use the profit alongside the salary to drastically bump up your affordability. We have several specialist lenders who can help self employed directors to achieve their property dreams.
We are specialists in self-employed director mortgages.
Regardless of your situation, the best way to make your mortgage application easier is to speak to an expert mortgage broker. We know not only what you are going to need to provide in the way of documentation and evidence. But also, how to ensure that your application for a self-employed director mortgage is approved. We have plenty of knowledge on the subject and how to get results for every possible situation. Contact us today to start your journey.
Why choose Matrix Mortgages?
Over the years, our business principle, Yasheen, has built up a reputation of finding solutions for self-employed businesspeople. In fact, it is one of the areas he enjoys the most. We understand your situation, pressures, and dreams. Our job is to take away the added stress and give you the dream without the stress!
As well as arranging a mortgage for self-employed directors. We can also save you time too. This means that you can focus on your business, or perhaps some other aspects of moving home. After all, the planning and preparation that goes along with this takes time. It also limits the amount of times that you are declined, impacting on your credit rating.
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