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Thursday 19 December 2024
Thursday 19 December 2024
Thursday 19 December 2024
Thursday 19 December 2024
It’s surprising how often we speak with self-employed individuals who believe that owning a business or working for themselves makes it difficult to obtain a mortgage. However, lenders are increasingly aware of the unique circumstances of self-employed people and have developed straightforward processes to determine how much they are willing to lend.
Whether you are a sole trader, a partner, or a company director, there are well-defined pathways to securing a mortgage. For sole traders and partners, lenders typically focus on net profits. For company directors, salary and dividends are key considerations. Some lenders also recognise that many business owners don’t draw their full entitled income and will include the applicant’s share of net profits and salary in their calculations.
Common Misconceptions About Self-Employed Mortgages
One of the biggest misconceptions is that self-employed individuals cannot get a mortgage. This is far from the truth. Another common misconception involves income requirements. Many believe you must have at least two years of accounts or tax returns to qualify. While many lenders prefer to see two years of financial records, there are lenders willing to approve applicants with just one year of accounts or a completed tax return.
These lenders often require that the income aligns with a previous role or is in an industry where earnings are expected to remain stable. Additionally, while some lenders average the last two years of income (if there is an upward trend), others will use the most recent year’s figures. This approach can significantly improve affordability for applicants with a higher income in the most recent year.
How Long Do You Need to Show Income?
The period for which you need to provide evidence of income depends on the lender. Most will review income over the past two or three tax years and either average it out or base their calculations on the most recent year. If you have a solid financial profile, some lenders may even consider applications with just one year’s accounts or a completed tax return.
Managing Mixed Income Sources
Self-employed individuals often earn income from multiple sources. For example, a freelance musician may be self-employed for performance work but employed on a PAYE basis for teaching. These dual income streams will appear differently on an SA302 form. With clear documentation and justification, lenders will treat both sources of income equally, ensuring they contribute to your overall affordability.
Key Documentation for Self-Employed Mortgage Applications
To prove your income, lenders typically require either an accountant’s reference or an SA302 form from HMRC. Below is an outline of the key documents you’ll need:
Tax Calculations and Tax Year Overviews: For sole traders and partnerships, these documents confirm income and are easily downloaded from the HMRC portal.
Accountant’s Reference or Certificate: Limited company directors may use company accounts. Depending on the lender, an accountant’s reference or certificate (in a prescribed format) may also be accepted.
Lenders are increasingly flexible, recognising the unique circumstances of self-employed individuals. This flexibility ensures borrowers have opportunities to get onto the property ladder without facing excessive barriers.
Overcoming Challenges in the Application Process
Some lenders may hesitate if there is a significant increase in net profits or if directors rely on retained profits. For directors who retain substantial profits in their business for tax purposes, some lenders will consider these retained profits during the application process. At Barrett Mortgages, we ensure you’re matched with lenders who understand your circumstances and offer tailored solutions.
How Barrett Mortgages Can Help
At Barrett Mortgages, we specialise in supporting self-employed first-time buyers through the mortgage application process. Here’s how we make it easier for you:
Understanding Your Situation: We take the time to understand your unique financial setup, whether you have mixed income sources or limited income history.
Expert Guidance: Our team helps you gather the right documentation, explains lender requirements, and identifies suitable mortgage products for your circumstances.
Tailored Recommendations: With extensive market knowledge, we recommend lenders who are flexible in working with self-employed applicants.
Support at Every Step: From initial advice to the day you get your keys, we guide you through the entire process, ensuring a smooth and stress-free experience.
One Key Piece of Advice for Self-Employed Buyers
Preparation is crucial. Ensure your accounts are in order, your income is well-documented, and you have clarity about your financial goals. Speak with a mortgage advisor early to set yourself on the right path. At Barrett Mortgages, we’re here to answer your questions, clarify the process, and help you achieve your dream of homeownership.
Let us show you how owning a business doesn’t have to be a barrier to buying your first home. Contact us today to start your journey!
It’s surprising how often we speak with self-employed individuals who believe that owning a business or working for themselves makes it difficult to obtain a mortgage. However, lenders are increasingly aware of the unique circumstances of self-employed people and have developed straightforward processes to determine how much they are willing to lend.
Whether you are a sole trader, a partner, or a company director, there are well-defined pathways to securing a mortgage. For sole traders and partners, lenders typically focus on net profits. For company directors, salary and dividends are key considerations. Some lenders also recognise that many business owners don’t draw their full entitled income and will include the applicant’s share of net profits and salary in their calculations.
Common Misconceptions About Self-Employed Mortgages
One of the biggest misconceptions is that self-employed individuals cannot get a mortgage. This is far from the truth. Another common misconception involves income requirements. Many believe you must have at least two years of accounts or tax returns to qualify. While many lenders prefer to see two years of financial records, there are lenders willing to approve applicants with just one year of accounts or a completed tax return.
These lenders often require that the income aligns with a previous role or is in an industry where earnings are expected to remain stable. Additionally, while some lenders average the last two years of income (if there is an upward trend), others will use the most recent year’s figures. This approach can significantly improve affordability for applicants with a higher income in the most recent year.
How Long Do You Need to Show Income?
The period for which you need to provide evidence of income depends on the lender. Most will review income over the past two or three tax years and either average it out or base their calculations on the most recent year. If you have a solid financial profile, some lenders may even consider applications with just one year’s accounts or a completed tax return.
Managing Mixed Income Sources
Self-employed individuals often earn income from multiple sources. For example, a freelance musician may be self-employed for performance work but employed on a PAYE basis for teaching. These dual income streams will appear differently on an SA302 form. With clear documentation and justification, lenders will treat both sources of income equally, ensuring they contribute to your overall affordability.
Key Documentation for Self-Employed Mortgage Applications
To prove your income, lenders typically require either an accountant’s reference or an SA302 form from HMRC. Below is an outline of the key documents you’ll need:
Tax Calculations and Tax Year Overviews: For sole traders and partnerships, these documents confirm income and are easily downloaded from the HMRC portal.
Accountant’s Reference or Certificate: Limited company directors may use company accounts. Depending on the lender, an accountant’s reference or certificate (in a prescribed format) may also be accepted.
Lenders are increasingly flexible, recognising the unique circumstances of self-employed individuals. This flexibility ensures borrowers have opportunities to get onto the property ladder without facing excessive barriers.
Overcoming Challenges in the Application Process
Some lenders may hesitate if there is a significant increase in net profits or if directors rely on retained profits. For directors who retain substantial profits in their business for tax purposes, some lenders will consider these retained profits during the application process. At Barrett Mortgages, we ensure you’re matched with lenders who understand your circumstances and offer tailored solutions.
How Barrett Mortgages Can Help
At Barrett Mortgages, we specialise in supporting self-employed first-time buyers through the mortgage application process. Here’s how we make it easier for you:
Understanding Your Situation: We take the time to understand your unique financial setup, whether you have mixed income sources or limited income history.
Expert Guidance: Our team helps you gather the right documentation, explains lender requirements, and identifies suitable mortgage products for your circumstances.
Tailored Recommendations: With extensive market knowledge, we recommend lenders who are flexible in working with self-employed applicants.
Support at Every Step: From initial advice to the day you get your keys, we guide you through the entire process, ensuring a smooth and stress-free experience.
One Key Piece of Advice for Self-Employed Buyers
Preparation is crucial. Ensure your accounts are in order, your income is well-documented, and you have clarity about your financial goals. Speak with a mortgage advisor early to set yourself on the right path. At Barrett Mortgages, we’re here to answer your questions, clarify the process, and help you achieve your dream of homeownership.
Let us show you how owning a business doesn’t have to be a barrier to buying your first home. Contact us today to start your journey!
