Many of the new enquiries we receive at Chancery are from people who are self-employed. I have covered below a few of the questions
How is my income treated for lending purposes?
Where sole traders/LLP’s or partnerships are concerned lenders will generally only accept a client’s net income after all expenses have been offset. For Ltd companies we have a bit more flexibility as lenders will use salary and dividends but we can source finance factoring in retained profits too. Short term contractors can secure mortgage finance too, lenders will look at the current contract and will base their decision to lend based on contract history, current contract length and experience. It would be easier to secure finance for an IT contractor with 3 years’ worth of 6 month contract history than it would be for someone who had just started contracting and on a 6 month contract, but each case is based on its merits and we know which lenders to approach.
How many years self-employed income do I need to have to be able to get a mortgage?
The accurate answer is 1 year with 1 year’s figures submitted to HMRC. There are a handful of banks and building societies who will lend to clients with 1 years accounts although the lenders credit score will be a bit more restrictive and it would not be unexpected for a client with 1 year’s accounts to have to put in more of a deposit than someone who is employed.
Will a lender use my projected earnings to determine the amount I can borrow?
No. A lender may ask for your accountant to confirm your projected income to back up an application where maybe only 1 year’s income figures are available but they will not base the lending amount on the income confirmed in the projected earnings.
It may be worth considering an offset mortgage in certain circumstances if you are self-employed, and you place money aside for tax each month in readiness for your annual tax bill. By offsetting your cash in a savings account against the mortgage account you could possibly save £1,000’s in interest!