Mortgage Lenders usually class you as self-employed if you own more than 20-25% of the shares of a business.
- Keep your accounts in Good Shape.
The mortgage broker can ask from one years accounts, mainstream lenders for three years but those accounts must be clear and accurate.
Creative Accounting may lower your tax; but you must show a strong company that pays you well for the mortgage you want to purchase. Ideally, you want your company turnover and profits to be consistent or increasing – obviously easier said than done!
This is more prominent in Residential than Buy to Let; ensure your personal income is strong enough to support the loan amount; retaining profits in the company may lower personal tax liabilities but can reduce the maximum loan a lender can offer you; especially after MMR – paying a fair dividend against the profit made each year should help.
Keep your accounts up to date – your most recent accounts cannot be more than 18 months old for mortgage purposes.
- Use a certified and chartered accountant
Lenders do not accept DIY Accounts or those submitted by a bookeeper. You need to make sure your accountant is certified or chartered for a mortgage lender to accept these as proof of income. Even if you record the accounts yourself; it is worth visiting an accountant to certify and submit them to Companies House.
- Have your SA302 forms an Tax overview prepared
HMRC can take a few weeks to provide SA302 forms – get hold of the forms in advance of applying for the mortgage. Have the documents ready (or at least requested) from day one.
All borrowers have to prove their income whether they are employed or self employed and so the difficulty for self employed borrowers is in how they evidence that income. If you are not an employee with a regular paycheck it is going to be more difficult; the SA302 is that “simple document” that lenders like to rely on from a government body – HMRC!
- Make sure your Credit Report is Healthy as Possible
All lenders take into account your credit report before they offer you a mortgage.
There are many steps you can take to improve your credit record: registering to vote, getting credit card and paying off the balance every month (even if you don’t need it).
- Save up as large a deposit as possible
Self-employed are seen as a higher risk – on a residential basis its almost impossible to obtain a 95% loan to value from self-employed. The lenders want you to put more funds at risk in the event of a default.
- Be Realistic
Do not overstretch yourself and attempt to take out a bigger mortgage than you can afford; self-employed people have variable income fluctuating.
- Use a Mortgage Broker
High street mortgage lenders have little, if any interest in lending to the self-employed. Specialist providers are more in tune with the self-employed, understand how they operate and look at each case on its own merits – specialist lenders almost exclusively operate through mortgage advisers (as well as the high street ones).