SELF EMPLOYED MORTGAGES
Working with Ltd Company Directors, Sole Traders, LLP’s and their accountants to help structure and achieve their lending goals.
Types of Self Employment
Sole Trader
Typically this will be one person who runs a small business and gets paid directly from the consumer. Sometimes there may be a combination of employed and self employed income, and also income from specialist schemes like the Construction Industry Scheme (CIS).
Lenders will normally assess the income based on the net profit figure which shows on the tax return. The mainstream lenders require at least two years trading figures for self employed people, with some wanting three years. As the market in this pace becomes increasingly competitive, there are now a few other mortgage lenders who will accept one years figures.
Limited Company Director
With a Limited Company Director – the director is employed by their own Limited Company in which they own shares. There may be just one director and shareholder, or several with equal shares or different share allocations.
For the purposes of lending, lenders will treat them as a self employed applicant, with most lenders using the salary and dividend payments, either for the latest year or average of the latest two years. This figure will normally be taken from the tax calculation, which is submitted at the end of the tax year (5th April). They will also want to see the latest 2 year’s accounts.
Some lenders however will take the salary and net profit before any dividends are taken and use that figure for the purpose of the mortgage application.
Dividend payments are typically drawn from the net profit of the company, however often we see directors who leave some or all the profits in the company not drawing them as dividends. This is either because they do not need the funds or want to reinvest the profit back into the company. These are known as retained profits.
Most lenders will not use the retained profits figure, only the net profit from that particular year.
Majority of Lenders will require the applicants to have an accredited accountant (either a certified or chartered accountant.)
Partnerships / Limited Liability Partnerships (LLP's)
Getting a Mortgage
Based on your self employed structure, the lending criteria will differ from lender to lender. This is why it is so important to have all your financials in order before applying for a self employed mortgage and to get mortgage advice from a mortgage broker in advance so you can plan effectively.
The process of getting mortgages for self employed clients, is similar to a mortgage application for employed borrowers, with access to the same mortgage lenders, mortgage deals and products.
The difference when applying for a self employed mortgage, will be how your income is calculated, and how your company is performing over a period of time. Self Employed applicants would need to evidence that they have a good stable business which will continue to grow.
What lenders require for self employed borrowers
- Credit Score
- Total Income - using either or combination of tax returns, company accounts and any other financial information available to confirm declared income
- Bank Statements - they will look at the conduct of both personal and business bank accounts to see if there has been will be any adverse effect on the self employed applicants ability to keep up repayments on the mortgage
- Loan Amount
- Other Debt in the background
- Electoral Roll
Affordability
Depending on whether you are a sole trader or company director the affordability calculations used when looking for a mortgage will vary.
Some mortgage lenders will look at the latest years figures from your tax calculations or average over the latest two years. Some lenders will look at the company profits/ retained profits.
When working out your affordability, lenders will to know how much money you want to borrow as a mortgage. They will look at the property value against the loan amount – this is known as the loan to value.
They also want to know what debts you have in the background and whether is unsecured or a debt secured on your existing home if you are a home movers. This could impact the amount of mortgage you are able to get.
Your credit score will have a reflection on which mortgage lender will accept your application and the affordability calculators vary from lender to lender.
Lending Criteria
Mortgage Products
Certified Accounts
The Mortgage Process
Client Review
Your mortgage advisor will carry out a client review with you. We go through your immediate, short and long term priorities.
We will explain our privacy policy and scope of services – this includes telling you who we are, what we do and confirm we are regulated by the financial conduct authority.
You will be given your mortgage advisors contact details on the initial call. They will discuss our fee (if applicable) and also advise on what documents we will need to process your mortgage application.
Discuss option
Once your mortgage advisor understands your individual circumstances (they will need to know things like; your income, outgoings, current credit commitments/ other debt, deposit for the mortgage, single/joint application, credit history, age and few other details), they will, quite quickly be able to give you a brief of how much you can borrow and an indication of what the repayments on your mortgage will be.
You will receive an email link to your own dedicated mortgage client portal. Here you will find your fact find/client review and the ability to upload the required documents to your mortgage advisor.
Once they receive your documents, they will review your options and present you with a mortgage solution (key facts illustration) and your fee agreement by email to review and sign.
Advice
You will then discuss points with your adviser such as initial rate, overall cost, mortgage type, monthly repayments on your mortgage, fixed rate/tracker rate, the term of your mortgage, what happens after a fixed rate period (if applicable), early redemption penalties, the mortgage product itself, any benefits, such as cash back, or fee free on valuations and legals .
We will always highlight the importance of you not only being able to get a mortgage, but also being able to keep up repayments on your mortgage and the implications of if you are unable to do so.
Although we cannot predict what will happen in the future, we will ensure that when we calculate your budget for the mortgage and costs, you firstly have enough disposable income and emergencies funds as savings so if you needed to you have a plan to keep up repayments.
When our mortgage advisors source the best deals for you we have access to thousands of different products.
Submit Application
Once you are happy to proceed, we will arrange for the application to be agreed in principle and then submit your mortgage application in full to the lender.
The lender may request to see certain documents and generally we would have requested these from you upfront to avoid any unnecessary delays. We keep you updated by text, email and phone during the whole process.
Why use a mortgage broker
Getting a mortgage if you are a self employed borrower can prove to be tedious and time consuming.
Our brokers are expert in their field and will have experience dealing with different types of self employed people. They will know lender criteria and also understand what income lenders will accept and based on income and affordability.
They can compare mortgage deals available based on your personal circumstances and will know the best lenders to approach for you. This in itself can be invaluable and help make the process as stress free as possible for you.
Your mortgage broker will be able to source the right mortgage deal for you, and look at interest rates available – options of a fixed rate and variable rate, and calculate the overall cost of comparison for each option.
They will also discuss the the monthly repayments on your mortgage will be, providing you with a solution which is right for you.
Sometimes depending on the structure and income from your business, getting a self employed mortgage from standard mortgage lenders could not be the right option for you. Your mortgage broker may have access to private banks who may be better suited to your needs.
If you would like an informal chat with an adviser, please use the contact form on our site, drop us an email: enquiries@london-fs.com or give us a call +44(0)208427 5057.
When is the right time to speak to a broker?
In many cases, we work with our clients from very early on in their journey, so there is never a right or wrong time!
We always say, it’s always a good time to speak to an advisor. If you are thinking of buying, refinancing now or in the future, failing to plan is planning to fail!
In this ever changing market, knowledge is power ! We can provide you with the up to date lender criteria, initial rate, discuss affordability and advise on loan to value, fees, fee free incentives, the best deals and pretty much anything else related to mortgages. Equipped with this you will be ready and prepared for your mortgage application.
Self-employed - Second property purchase
You may be looking to purchase a second property and are looking at getting a mortgage to fund the purchase. This could be for a holiday home, or maybe you need a somewhere to stay when you are working away from home. We have access to lenders that can help in these situations.
The lending would still be based on your income but the lender will take into consideration the mortgage and running costs of your existing property when calculating your affordability.
Your income will need to be sufficient to cover the costs for both properties.
Can I get a self certification mortgage in the UK
Important Information
Dhavi Limited (t/a London FS), is directly authorised and regulated by the Financial Conduct Authority. We are on the Financial Services Register under firm reference number 628993. Dhavi Limited is registered in England No. 7301914
Registered Office: 7 Bell Yard, London, WC2A 2JR. Tel: 020 8427 5057. Fax: 020 7160 5331
* The Financial Conduct Authority does not regulate some forms of buy to let, secured loans, commercial finance, bridging finance, overseas or offshore mortgages and will writing. Your initial mortgage consultation is obligation free. We charge an administration fee for processing each mortgage contract and our fees only apply when you decide to proceed with an application.
For standard residential mortgage contracts the typical fee of up to 1% of the mortgage loan applies of which £500 is payable on application with the balance payable on offer .
For buy-to-let mortgages a typical fee of up to 1% of the mortgage loan applies of which £500 is payable on application with the balance payable on offer.
For offshore and commercial mortgages a typical fee of 1% of the mortgage loan applies of which £1000 is payable on application with the balance payable on offer.
For impaired credit lending the typical fee is 1% of the mortgage loan applies of which £500 is payable on application with the balance payable on offer.
The overall cost for comparison is 5.5% APR. The actual rate will depend on your circumstances. Ask for a personalised illustration. The advice and/or guidance contained within this website is subject to UK regulatory regime and therefore is restricted to consumers based in the UK
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