More and more people have gone Self-Employed over the past 25 years. Formerly seen as a “Get Rich Quick” Scheme, nowadays it’s just down to changes in work-life circumstances, personal preference and shift flexibility.
It’s highly unlikely that you’ll stay working for your first employer all the way through to your eventual retirement. People change jobs to improve both personal and financial situations.
For example, sectors such as Digital and Engineering often see an increase in self-employed and freelance roles due to the nature of those jobs. It’s only natural that people that work within those positions, with no guaranteed basic income, can feel rather nervous about their chances of obtaining a mortgage.
One thing that is sure to make you feel less nervous, is the notion that more lenders are starting to cater to these types. Nowadays if you’re self-employed, getting a mortgage is no longer impossible.
It is, however, considered a specialist area. In this article, we’ll cover common questions and topics from self-employed applicants, with the hope you’ll come away better prepared for the home buying process.
If you go to a Self-Employed Specialist lender, you will need a minimum of one years’ Accounts in order to get a mortgage. For most High Street Lenders, you’ll likely need to show 2 years’ Accounts.
Statistically and sadly, most new ventures end up being unsuccessful and therefore lenders will need you to prove a track record.
Most lenders will take an average of your earnings from the last 2 years; however, some may work off the latest year if your business is growing, ignoring what happened before.
Unless you own less 25% of the company shares, lenders will not assess you as an employee, even though you technically are. To calculate your annual earnings, most lenders would add the dividend you have drawn to your annual salary.
The total amount you can borrow for a mortgage will be based on a multiple of this figure. Some lenders will work from net profit rather than salary or dividend, which works well for Directors who keep their drawings low.
This is something that often comes up in conversation with customers, but unfortunately, there isn’t a lot we can suggest. We understand that normally when you have your annual meeting with your Accountant, they’ll advise on how to minimise your tax liability.
When it comes to taking out a Self-Employed it’s completely the opposite. The more you have declared, the bigger the mortgage you can take out.
For self-employed applicants, the amount of deposit required is the same, unless you have only one years’ Accounts. At that point, you may be asked to put down more. Usually for any mortgage, the minimum deposit required is 5%.
For contractors, there are a lot of mortgage options. These days, more and more people are working from shorter-term contracts. So long as you can demonstrate a good track record, lenders are more likely to consider your daily rate than your net profit.
What’s really great though is that if it works out better to treat you as self-employed over being labelled a contractor, some lenders are willing to do this for you. The lender will also ask how much is remaining on the contract you currently have. They need to be assured you can confidently afford your mortgage and maintain an ongoing income.
Depending on specific circumstances, it could even be possible to get your mortgage whilst undertaking your first contract.
Unfortunately, these are no longer available to applicants due to being widely abused.
Without any doubt, when trying to get a mortgage as a sole trader, partner or company director, you’ll find the process a lot more complex than an employed applicant would.
Some lenders are more flexible than others and we think it’s vital that you get a mortgage broker in Manchester on your side as early on in the process as you can. From the start, you’ll then have a realistic expectation.
Self-employed in Manchester mortgages can take a lot of planning ahead. If the applicant has not earned a great amount in previous years, we may be able to make a rough estimate as to how much they can borrow for a mortgage. This will be based on a projection for the following year. These accounts though would have to be submitted to the Revenue before a mortgage application is submitted.