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Self-Employed and need a mortgage?

Self employed? Don’t be put off getting a mortgage

Wednesday 9 October, 2019

Thomas Wheatley, Mortgage Broker in Tottenham, North London, reviews the mortgage market for the self employed and confirms that people who work for themselves can find a suitable mortgage product as more lenders look to lend to self employed clients. If you are self employed and looking for a mortgage contact our mortgage broking team on 01707 872000.

Self employed workers don’t think they can afford a mortgage

A recent article from Mortgage Solutions provides evidence from Kensington Mortgages showing that a million people who work for themselves don’t think they will ever be able to afford a mortgage.  

This demonstrates clear concern from people who are self-employed about their eligibility to get a mortgage. Some people have decided that it is not worth even going through the mortgage process. 

Lenders are wanting to lend to self-employed clients

Thomas Wheatley, Mortgage Broker in Tottenham, North London, said:

‘I believe the concerns self-employed people have are not warranted as a number of mortgage lenders are wanting to lend to self employed clients and their criteria reflects this. But I agree that the mortgage process isn’t as straight forward as if a client was salaried, which is why it is very important to discuss your financial circumstances with a mortgage broker who can offer appropriate mortgage advice for your situation.’

How lenders assess self-employed income differently

Lenders assess self-employed income in a number of different ways depending on their criteria and how your self-employed income is structured. For a limited company director, the majority of lenders will class an applicant as being self-employed if they own more than 20% shares in the company. They will then assess the income in a number of different ways, with the main three methods being the following:

  • Your salary plus your share of net profit.
  • Your salary plus your dividends.
  • Your salary plus your share of net profits plus your dividends. 

Discuss your financial circumstances with a mortgage broker to find the best mortgage product

The final method to determine borrowing would lead to an increase in the amount of borrowing required but it is usually utilised by mortgage lenders who charge higher interest rates so the majority of clients would go to a lender who uses either your salary plus your dividends or share of net profit. The method which will work out best will depend on the way you have been paying yourself over the last few years. This is why it is essential to discuss your circumstances with a mortgage broker to assess this. Remember if you go to a lender direct, they may use a method which would lead to your borrowing being reduced significantly. For instance, if you have not been taking out a high dividend because you don’t need the income, but the mortgage lender uses this method you might not be able to borrow as much as you require. However, if the mortgage lender used the client’s share of net profit the borrowing you could achieve would be much higher.  For a client who is a sole trader the method is much easier as lenders will use the client’s net profit as a basis for determining borrowing. 

A mortgage broker will help you find a lender who can assess your income in the most favourable way 

Thomas Wheatley, Mortgage Broker in Tottenham, North London, continued:

‘However, where a mortgage adviser’s knowledge and expertise are useful is when you decide which lender will assess the income in the most favourable way. For both sole traders and limited company directors’ mortgage lenders will assess the income over a number of years, normally either 3 years, 2 years or the most recent year. This is not as much of a concern if the client’s income has been stable but for many clients especially those who are recently self-employed there could have been a large growth in the income. It is essential that a mortgage broker analyses this information to ensure that the mortgage lender is the best fit for the client. Another very important part of the criteria which is unique to a few mortgage lenders is that they will allow a client who has been self employed for a year. This differs between different mortgage lenders as some need an income track record within an industry and some are happy without this.’

Mortgages for self employed in summary…

Anyone who is self-employed should remember that mortgage lenders are willing to lend to self-employed applicants and do on many occasions. However, if you speak to a mortgage broker who can review your individual circumstances, they will be able to offer you appropriate mortgage advice and this will help you find the best mortgage lender offering the best mortgage product for your circumstances. For more information contact one of the Thomas Oliver mortgage broking team on 01707 872000.

As a mortgage is secured against your home, it could be repossessed if you do not keep up the mortgage repayments.

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