19 Oct What do I Need? Mortgage Help for the Self-Employed
As a director, you might think of yourself as employed but – in the eyes of mortgage lenders you’re self-employed. If you own a 25% or more share of your company, you’re self-employed.
What Are Your Options?
Those considered to be self-employed, are:
- sole traders
- limited companies
With partnerships and sole traders, the process for finding a mortgage is fairly straightforward. You declare your income to the Inland Revenue and pay tax on your net profit, that net profit figure is the one that lenders will look at. Lenders will either take the figures from the most recent year, the average of the last two years or the average of the last 3 years – different lenders look at different figures. So, we’ll ask you to tell us all three, we’ll know which figures to use for the best lender to suit you.
For directors of limited companies, things are more complicated. We will ask you to obtain your last 3 years accounts (or if you’ve only got one year because you’ve only been trading for one year, that’s fine).
We also ask you to get your tax calculation from HMRC, or your accountant, and your tax year overview. These can differ to your standard accounts because, although account year ends are often around April (like the tax year), some people have different year ends. It might be set for the anniversary of when you started the company, or it might be you’ve changed your year end because of when you want to pay corporation tax – a lot of people don’t want to pay it at Christmas because it’s a horrible time of year to have to pay a big tax bill.
So, we look at your different figures, and consider possible lenders who will look for different options.
- Some lenders will look at your share of net profit plus your salary.
- Some lenders consider your salary and dividends for the accounting period.
- Other lenders will look at your salary, dividends and your tax calculation but not look at your accounts.
- We have other lenders who look at your share of profit before corporation tax, which is often quite large (particularly if you retain profit in the company) plus salary.
- We have one lender that considers share of profit, plus salary and dividends – this can often work out quite well. Rates are obviously a little bit higher, but it generally works.
It’s not always straightforward, but there are options. And we’ll always find the best deal 4U.