More and more these days we see people switching to a Self-Employed career. They are not looking for “get rich quick” schemes, they just work different schedules than they normally would.
Though not unheard of, it is not very likely that you would stay with your first employer all the way through to retirement. Usually, people change jobs to improve their own personal and financial situations.
Digital and engineering sectors for example give rise to self-employed and freelance roles. Understandably so, people who work from home can be concerned as to whether or not they are able to obtain a mortgage.
Fortunately, lenders are now more aware of the changes to employment and bringing forward new products that have help if you are Self-Employed. This means if you were hoping but not sure, now is the time to speak with a Mortgage Broker in Liverpool. Though possible, it is still considered rather specialist, so in this article we will dip into what you will need to ensure you are one step closer to a mortgage.
The minimum required for a Self-Employed applicant is 1 year’s books, though that’s usually specific Self-Employed applicant based Lenders. The majority of High Street Lenders will require 2 years’ worth.
Statistically, many new business ventures are not destined to succeed, so Lenders will want proof that you are able to keep up repayments.
Most lenders will take the average from your last 2 years’ worth of income. That being said, if you have a growing business, some lenders will just take the 1 year.
Though technicalities would state you are an employee of your own company, most lenders will not recognise this unless you have 25% of the shares in your name. Most Lenders would add the dividend you have drawn to your annual salary to calculate what your annual earnings are, a figure of which the amount you can borrow will be based on a multiple of.
Every so often you will find a Lender who will work from net profit rather than salary/dividend. This works in the favour of Directors who keep their drawings low.
This is a question we often get asked, though unfortunately you “can’t have your cake and eat it”. We recognise that when you have your annual meeting with your Accountant, part of the chat you will have is around how to minimise your tax liability. For getting a mortgage, the opposite is more the way to go. If you declare more income, you can claim a bigger mortgage.
The deposit required for self-employed mortgage applicants does not differ from that of regular employees. Usually this means the required deposit is around 5%. If you only have one year’s Accounts though, you could be required to put down a bit more.
You might be surprised to learn there are a lot of mortgage options available for contractors. Nowadays more and more people are working from short term contracts.
If you are able to show the lender that you have a good track record, then they may consider taking your “daily rate” rather than your net profit. The handy thing about being a Contractor though, is that if putting you through the process as Self-Employed works out better, they will roll with that instead.
The Lender will also want to know how long is remaining on your current contract. A consistent contract length will give the lender the utmost confidence that you can fulfil your repayments. It could be possible to get a mortgage even if this is the first contract you have had depending on the circumstances around your current situation.
Unfortunately, “self-certification” mortgages were widely abused in years gone by and as such they are likely never coming back. There is no doubt that getting mortgage as a sole trader, partner or Company Director can understandably be a more difficult process than it would be for someone regularly employed.
Some lenders can be a little more flexible when it comes to Self-Employed Mortgages in Liverpool, so it is always worth getting in touch with a Mortgage Broker in Liverpool to see what we can do to find the most appropriate deal for you.
Getting a self-employed mortgage can take a lot of future planning. At times, if an applicant has not earned enough in the past, we are able to make a prediction about how much they can borrow based on a projection for the following year. Those Accounts though, would have to have been submitted to the Revenue before the mortgage application was submitted.