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There is a reputation within the mortgage industry that it is extremely difficult to get a mortgage if you are self employed. In reality the ability to get a mortgage is no different to somebody being full time employed. You have to pass the same credit, affordability & document checks that every mortgage customer goes through.
The biggest problem for the self employed tends to be achieving the size mortgage that you are looking for and this largely comes down to what a lender accepts as your income for affordability checks and what you perceive to be your income
So What Does a Lender Use For Income?
Depending on how you are Self Employed will determine what will be used to assess income. If you are a Sole Trader or part of a Partnership then a lender will take your “Profit From Self Employment” that appears on your Tax Calculation
If you are a Director of a Limited Company then depending on which lender we are looking at will determine which figure will be used to calculate the mortgage affordability. The numbers that could potentially be used are;
Net Profit After Taxation
Net Profit Before Taxation
Dividends you paid yourself
Your Accountant vs Your Mortgage Adviser
So when considering the above you can start to see why Self Employed people find it harder to achieve the loan they want to achieve as a lot of people when thinking of how much they earn they think about their Turnover as opposed to their net profits.
This is where your Accountant and Mortgage Adviser then are polar opposites as to achieve the loan you want you are needing to show as much income/profit as possible whereas your accountant will be doing their job and using all of your acceptable expenses to reduce your declarable profit for which you pay tax on as a tax bill on £100,000 worth of profit versus £50,000 after expenses can be a big tax saving.
What Documents Will I Need For a Mortgage?
Proof of Identification – Normally Passport or Driving Licence
Proof of Current Address – Driving Licence or Utility Bill/Bank Statement posted within the last three months or Current Years Council Tax Bill
Last Two Years Tax Calculations & Tax Year Overviews
Last Two Years Accounts If Limited Company Director
Three Months Personal Bank Statements
Three Months Business Bank Statements
Proof Of Deposit
Can I Get A Mortgage If I've Been Self Employed For Just One Year?
Whilst the majority of lenders will look for Two Years Accounts or Tax Calculations there are some lenders that could potentially consider an application with just a single calculation or single years accounts but it is likely to be assessed more stringently due to the added risk to a mortgage lender but if the case is a strong one then it could still be accepted by a mortgage lender.
If I Took Covid Support Could I Still Get a Mortgage?
A lot of businesses throughout COVID took some form of government support. It is still possible to get a mortgage even if you did take some of support on offer. It will be factored into affordability so things like COVID grants will not be taken into account as part of your “Income” and any payments towards BBLSs or CBILS will also be put into the affordability calculation to determine how much you can borrow