Self Employed Guidance

Gone are the days of someone leaving school at 18 and working for one employer all the way through to their eventual retirement. The rise in new engineering and digital occupations has, in particular, allowed for the popularity of self employed roles. But the uncertain nature of this type of work can make banks nervous.

If you are self employed in Liverpool, it’s not impossible to get a mortgage, though it certainly is considered a specialist area. So we will take the opportunity to help you get prepared if you’re thinking of buying a house whilst working as self employed.

How many years’ accounts do I need?

Most lenders will only require a minimum of one year’s trading, with some lenders having stricter rules and wanting a minimum of two. The reason for this is that so many businesses fail within their first year and it’s a lot of risk that the banks aren’t willing to take.

How is my income assessed?

Generally speaking, lenders will take the average of your last 2 years’ earning, however, there are some who go off the latest year. This could be very good news for you if your profits are on the increase.

I’m a director of my own limited company – does this mean I’m employed?

This is a little trickier to answer. Technically yes, you are employed, however, unless you own less than 25% of the shares, the lender will not recognise you as an employee of the business. Most lenders add your salary to your declared dividend to calculate your annual earnings, with the occasional lender using net profit, something which can be good if your business retains some profit.

My net profits don’t reflect the true picture of my business – what can I do?

This is a question we hear regularly, but unfortunately, there’s not a lot we can do. Your mortgage application is assessed on the income that has been declared (net profit or salary/dividend) to the revenue. If you want to get a mortgage then you will have to have paid at least some tax.

How much deposit do I need?

No matter whether you’re a self-employed applicant or a standard employed applicant, this remains the same. You will need a minimum of 5% although it may be more than that if you only have one year’s accounts.

Will a bigger deposit help me?

Putting down more deposit will likely open you up to a better deal than you otherwise would’ve had to choose from, and you will have a wider choice of lenders too. That being said, it doesn’t make any difference to the amount of mortgage you would be granted to borrow.

I’m a contractor – am I treated differently?

Admittedly, lenders do seem to like contractors a little more at certain times, especially if you’ve built up a good track record. With that, the lenders can consider taking your “daily rate” and applying a multiplier to this rather than your net profit. There have been lenders in the past who have offered bigger mortgages to contractor applicants using this method, especially for IT contractors.

Can I self-certify my income?

Unfortunately, “self-certs” were widely abused by applicants in the pre-credit crunch days and there is no sign of this type of mortgage ever returning.

Taking out a self employed mortgage in Liverpool can certainly be more complicated than it would be for an standard employee, though some lenders may be more flexible than others when it comes to this.

That’s why It’s a good idea to speak with an experienced mortgage broker in Liverpool early on in the process. You’ll have realistic aspirations right from the start.

Long gone are the days when your bank manager could “take a view” on your circumstances just because you are a loyal customer. The lenders lean increasingly upon their computerised credit scoring systems and like lots of things, it’s just knowing where to look.

Date Last Edited: October 28, 2024