Self-Employed Mortgage Advice
There are a lot of stresses that business owners, directors and self-employed individuals have to deal with. From the day-to-day running of a business and keeping employees happy to not knowing how much you might be taking home at the end of the month, being a business owner also affects your non-work related life. Many people in these roles worry about how much they can borrow for a mortgage and if they’ll even qualify. In this article, we explore self-employed mortgage advice, including that for business owners and directors.
Mortgage Advice for the Self-Employed
Being self-employed can create a kind of catch-22 situation. On one hand, you will be wanting to keep your profits as low as possible to avoid a big tax bill. This is usually on the advice of your accountant. However, this can create an issue when it comes to borrowing money. Why? Because it looks like you are not earning as much as you are and therefore become less attractive for a lender.
Unfortunately, you can’t have it both ways! Generally, you have to decide whether you want a lower tax bill or better borrowing credentials.
However, lenders do sometimes assess your income in several different ways. This means some lenders will lend more than others and our role is to find the one most suited to your requirements. For example, most lenders average the last two years earnings, but we have access to others that only consider the latest year. This can be beneficial if you’ve seen an upturn in business over the last year.
Mortgage Advice for Directors
Again, if you’re the Director of a Limited Company, lenders can assess this in different ways.
Some will average the last two years of salary, plus dividends.
Others will class you as employed unless you own a certain percentage of the company. In this scenario, even if you are a Director, they might consider going off your payslips for the last three months. This, like above, can be beneficial if the last three months have been more favourable.
Mortgage Advice for Low Dividend Business Owners
As well as the above, some business owners run highly profitable organisations but only feel the need to take a low dividend in order to keep cash in the business. This type of applicant can be disadvantaged by the salary plus dividend method as their earnings will appear low. As a result, they will seem less attractive as a borrower.
However, there are lenders out there that will consider using the net profit of the Limited company to solve this problem.
If your business is due to complete a set of accounts, you can contact us with the projected figures. We can then use that information to calculate what your maximum borrowing would be. If we believe this is the best option for you, you will then need to finalise your accounts prior to a formal mortgage application being made.
In summary, calculating maximum borrowing capacity for a self-employed applicant really is a minefield – you could easily go to 10 different lenders and get 10 different answers! In fact, we wouldn’t be surprised if you did.
If you need to maximise your borrowing capability, we would urge you to use a Mortgage Broker. Their knowledge and experience will mean that they can get the best deal for you.