Self Employed Mortgages
It seems there are a lot of mis-conceptions when it comes to getting a mortgage for self employed people these days and I read information that is incorrect on a daily basis. This information coming from large reputable companies as well. As a majority of my time is dealt with self employed clients I wanted to put it out there exactly what is available and share recent mortgages we at Mesa Financial Consultants have managed to get agreed.
The first assumption I hear when it comes to a self employed client obtaining a mortgage is they will need 3 years of business trading to be able to obtain one. First of all most lenders will take 2 years trading accounts. There are now even a lot of Lenders that will take 1 years accounts. A purchase we have completing this week is one of our clients that has been trading for 18 months. Only has one self employed tax return and need to borrow £500,000. Spoke with the lender before any submission as not to create a credit footprint, explained the clients situation and experience within the industry and 2 weeks later we had an offer. Please note that all situations are individual, but recently we also managed to get a lender to agree a section of a mortgage based on 10 months trading.
When it comes to contractors, there are also completely different rules with lenders. There are a number of lenders that will take the contract value to work out affordability and how much can be borrowed. This generally allows a larger sum to be borrowed on the mortgage, when purchasing in London this is always a bonus. Again this is normally subject to the industry of the contractor.
So when your in a LTD company structure but you keep your drawings to a minimum for obvious reasons, does this hinder your borrowing ability? It can do, but again in certain situations a lender will take the retained profit figure in to consideration. E.g. Client would like to borrow £1,000,000, personal drawings from the company is £180,000. Maximum borrowing for the lender is 5x income. This puts the mortgage unaffordable. Client has £100,000 retained profit in the company, certain lenders would allow to take this as income as the client has chosen not to draw on these funds. So with £180,000 + £100,000 totalling £280,000 the lending then fits easily.
On the other side it is also the assumption that you will be unable to get a mortgage if your company has a trend of declining profit over the last year or two. Again there could be many reasons this has happened, but if there is a valid explanation there are lenders that will entertain the borrowing. Recent client had a declining profit due to re-investment in to the company. Drawings stayed the same due to lifestyle, but was draining funds from the business. Explained to the lender regarding the re-investment and showed the upturn after this investment. We had the accountant write a forecast and the mortgage was agreed within 1 week. Please note this also came after another broker had declined to assist due to the declining profit.
Each case is completely individual and should be looked at in there own merit. If you have any questions on a self employed mortgage then feel free to get in touch.
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