If I had a pound for every time I heard “I’m Self employed so I think that’s the tricky bit…” I would be sunning myself on some white beach somewhere in the globe!
It really is a curious thing being self-employed and then trying to obtain a mortgage – the fear is real, and the juggle of between an accountant and a mortgage broker is never bought into question more…
It starts like this really, you have learnt your trade and the draw of becoming a self-employed person is there, you know you can do things better, more streamlined, more personable perhaps, more you… so you talk to your partner, family, yourself and you take the leap…
So, you think of everything, put enough money behind you to make sure that you can make the leap and things start well… you are off and running, first client, money starts to come in…
10 months in and the diary is full, money is coming in and you are actually paying yourself, in fact you’ve managed to actually put some savings away – this was it, the self-employed dream has become a reality…
Occasionally we are confronted with this as independent mortgage brokers and the next question is “can we get a mortgage as a self-employed person”
Well the answer at this stage could be yes, but it will come with caveats… usually in the first year of trading you will invest something into getting your business up and running, in a limited company structure this would perhaps be taken back as part of a directors loan in that, and not all lenders will look at this as income we can use… which can come as a shock to our clients… actually more of a disappointment if truth be told…
However, in more positive news, if we have a clear first years trading there are lenders who will be more happy to look at the income we have – this will be made up of Salary and dividends or salary and net profit – both will need to be proved and we as brokers tend to work closely with the accountant to work out this number so it is accurate when we make our application.
If we move into the world of two years worth of trading, and therefore accounts the lenders will generally like to do an average, although again some lenders will be a little more flexible and look to take the latest years figures – so this is something we will always look to do…
There are options a plenty – the key thing though is in this day and age, there are no angles… the day of the self-certification mortgage (Self-Cert mortgage) are gone… well gone…Now in honesty do I think there is a place for them… yes I do as matter of fact, the issue with them was they got abused – we didn’t learn… employed people used them and abused them and it had to go pop… but there is a sensible space for them I believe, however without wishing to burst anyone’s bubble… like that bit in point break when Utah lets Body go and ride that final wave… ‘They’re never coming back!’…
So, proving ones income is the only way to go… I do believe however that lenders need to be a little more understanding around the self-employed…..
Let me give some examples… phones, cars, pensions, insurances all taken out of a businesses profits, but perhaps not paid for by the end client… lets add that stuff back – its optional for a self-employed person… but also not something they then have to pay for… it’s not acceptable to then throw their income at the office of national statistics because you can bet that when they get to their national average outgoing – the cost of these things are rolled in…so the self-employed mortgages are being double counted as far as I can see…
Its funny because when we look at an employed persons mortgage with certain lenders we can ignore pension and travel (although not sure how much of this there will be in this new world!) – but if you are self-employed and your business pays for this out of its profits there is nothing doing!!!
Ultimately this is what we are dealing with at the moment so if you are looking for a self employed mortgage then you MUST visit an independent mortgage broker – it’s the only way of getting a truly clear professional view of what options there are out there… and my advice would be do it early… we need the time, and so does the accountant and when we work together… there is a good chance there will be a mortgage at the end of the rainbow…
So the curious case of the self-employed button doesn’t have to be quite as curious when you know how to use it!
Jamie Lewis
Managing Director
