Mortgage lenders for some reason treat the self employed with an element of suspicion. I am not entirely sure why this should be the case, after all an employee could walk into work on a morning and be presented with redundancy papers, whereas business owners generally would be aware of storm clouds on the horizon.
Nevertheless, it is what it is and for this reason a business owner should explore all options when seeking a residential mortgage or buy to let (or a remortgage) as the outcome and available borrowing can vary hugely between different banks and building societies.
We have summarised below our top ten reasons business owners can have difficulties in this area: -
1 – in many cases 3 full years trading accounts are needed – however with some lenders one year is perfectly acceptable.
2 – income used for Limited Company Shareholders – whilst most lenders allow salary plus dividends, a few consider salary plus share of net profit. This can make a huge difference to the borrowing level available in some cases.
3 - most recent years’ accounts – for a growing business a lender which bases its mortgage decision on the most recent years’ income rather than an average of the past two or three years will be an advantage.
4 – actually proving your income, for example tax returns, SA302’s, full accounts or an accountants certificate
5 – date of most recent accounts – some lenders will insist that up to date accounts are prepared even if technically these may not be due yet – this can cause unnecessary delays.
6 - contractors – a growing number of people now work on a contracted basis rather than being a permanent employee. Specialist lenders, often not available on the High Street, have huge experience in this sector.
7 – change of business status from sole trader to partnership or Limited Company
8 – Professionals (Doctors, Accountants, Solicitors etc) recently switching from employed status to join a well-established partnership.
9 – the maximum age at the end of the mortgage term for self employed borrowers.
10 – inexperienced bank and building society underwriters not understanding self-employed income!!
As can be demonstrated this is an area where business owners should not despair if their natural first port of call (perhaps their bank), is either unable to provide a mortgage or falls short of the amount needed as expert mortgage advice can smooth the path to that ideal home.
Not all mortgage lenders are the same - always take local expert advice before committing to a mortgage. Why give up on your dream home when experienced mortgage advisors may be able to help?
Local, face to face, independent mortgage advice can smooth the whole process and we would be delighted to help.
Paul Hardingham and Tony Ibson are Mortgage and Protection Advisers at Innovate Mortgages and Loans. Both have over 20 years of experience advising individuals and businesses across the North East of England. They can be contacted for bespoke advice at firstname.lastname@example.org or email@example.com or call 0191 223 3514.
Your home is at risk if you do not keep up repayments on a mortgage or other loan secured on it.