Providing evidence of affordability for a self-employed mortgage is not always easy. Without having a permanent job and fixed income as security, it can often be more difficult to convince lenders to let you borrow the mortgage amount you need. Fortunately, each mortgage lender has a different policy and criteria. Some are more generous with the income multiples they offer and can be open to alternative circumstances. Our expert advisers have access to these specialist lenders who will hopefully be able to provide you with the most suitable mortgage to suit your financial situation. They will help guide you through the application process to give you the best chance of mortgage success.
So, how much can you borrow if you’re self-employed?
Whether you’re employed or self-employed you need to be able to meet the mortgage lenders’ criteria. Typically, you can borrow 4.5 times your annual income, as this is usually the maximum the majority of lenders will allow. However, there are some lenders that might offer you 5 times your income, and even a small handful who could offer 6 times your income, in the right conditions.
To get the mortgage that is most suitable for you and your finances, it is extremely important to find a lender who is in the best position to help self-employed borrowers. The way in which they assess your income will be different compared with a borrower who is employed full-time. For example, some lenders will want you to be able to produce accounts that cover a certain number of years, whilst others may only let you declare a percentage of any bonuses or commission you may earn as income.
Sole trader mortgage affordability
For a lender to determine a self-employed borrower’s income, they will require a proven and well-documented history of trading. A lot of lenders will request three years trading history before they will deem the applicant’s income stable enough to lend on. Some lenders may accept two years and others often allow sole-traders and partnerships a mortgage with one year of self-employment income.
It is still beneficial to have an accountant regardless of how many years of documents you need. This is because you will need your self-assessment tax year overview and SA302 documents; these outline your total annual turnover, expenses, and the net income you have received.
Company director mortgage affordability
Limited company director mortgages work a bit differently as they are usually registered as PAYE employees of the business, which then pays out their tax-free allowance as a salary, with any additional income paid as dividends from profits. The majority of lenders will only look at salary plus dividends, however there are some that may consider the applicant’s share of net profits, if there is money left in the business.
Normally, these could include:
- Pension contribution
- Share of net profit
- Car allowance
Can you use a contractor income to get a mortgage?
Securing a mortgage as a contractor can be quite difficult, this is in part because lenders have different criteria as to what defines a contractor, which will then dictate how much a contractor can borrow.
Each lender is different and will have their own policy on who they will and won’t be willing to lend to. Typically, it will be based on how long you have been contracting for, how long you have worked in that industry, if you have had contracts renewed, how long you have left on contracts etc.
Contact Finance Advice Centre today to have your questions about self-employed mortgages answered.
As a mortgage is secured against your home it could be repossessed if you do not keep up the mortgage repayments.