In recent years, we have witnessed a significant increase in the number of self employed individuals. This trend is not driven by “get rich quick” schemes, but rather by the changing landscape of work patterns.
It has become increasingly uncommon for individuals to remain with a single employer until retirement. People now switch jobs to enhance their personal and financial circumstances, resulting in a surge of self employment.
Certain sectors, such as digital and engineering, have experienced a rapid growth in self employed and freelance roles.
With the rise in self employment, it is natural for individuals in these positions to feel apprehensive about obtaining a mortgage due to the inherent income uncertainty associated with self employment.
Fortunately, mortgage lenders have recognised this shifting employment landscape and have adapted their mortgage offerings accordingly. Acquiring a mortgage as a self employed individual is now more accessible than ever before.
It is important to note that self employment still falls within the realm of specialist mortgage considerations.
To help self employed applicants in Nottingham who are contemplating the exciting prospect of homeownership, we have compiled some helpful hints and tips to ensure they are well-prepared.
What can I do to prepare for my self employed mortgage in Nottingham?
- Organise Your Finances: As a self employed individual, it is crucial to have your financial documents in order. This includes maintaining accurate records of your business accounts, tax returns, and financial statements. Lenders will require these documents to assess your income stability and affordability.
- Establish a Track Record: Mortgage lenders generally prefer self employed applicants who have a consistent track record of income generation. If you are relatively new to self employment, it may be beneficial to establish a few years of accounts to demonstrate your financial stability.
- Consult a Mortgage Advisor: Seeking guidance from a mortgage advisor who specialises in self employed mortgages in Nottingham is highly recommended. They have the expertise to navigate the complexities of the mortgage market and can help you find lenders who are sympathetic to self employed applicants.
- Be Prepared for Scrutiny: Self employed applicants can expect a more thorough examination of their financial situation compared to traditionally employed individuals. Lenders may request additional documentation, such as contracts with clients, proof of ongoing work, and future income projections. Being prepared to provide these documents will streamline the application process.
- Save for a Larger Deposit: Saving for a larger deposit can strengthen your mortgage application. A larger deposit demonstrates your commitment to homeownership and reduces the perceived risk for lenders, potentially resulting in more favourable mortgage terms.
- Maintain a Good Credit Score: Like any mortgage applicant, self employed individuals should strive to maintain a healthy credit score. Regularly checking your credit report, paying bills on time, and managing existing debts responsibly will contribute to a positive credit profile, improving your chances of securing a mortgage.
By following these hints and tips, applicants of self employed mortgages in Nottingham can position themselves for success when pursuing their dream of buying a home.
While self employment may present unique challenges, it is important to remember that lenders are increasingly accommodating to this growing segment of the workforce.
With proper preparation and expert mortgage advice in Nottingham, self employed individuals can confidently navigate the mortgage process and achieve their homeownership goals.
How many years’ books do I need?
To ensure mortgage lenders have confidence in your financial stability as a self employed individual, it is important to provide evidence of your track record. Generally, specialist mortgage lenders typically require one year of accounts, while high street lenders may request two years.
This is because mortgage lenders want to assess the consistency and reliability of your income before approving a mortgage application.
By scrutinising your accounts, mortgage lenders aim to gauge the performance of your business over a specific period. They want assurance that your income is stable enough to meet mortgage repayments.
Specialist mortgage lenders often focus on the most recent year’s accounts to evaluate your financial situation. On the other hand, high street lenders prefer a longer track record to assess your overall financial stability and sustainability.
Maintaining organised and accurate financial records is crucial for self employed individuals. It not only helps in providing the necessary documentation for mortgage applications but also showcases your financial responsibility.
By presenting comprehensive accounts that reflect your income, expenses, and business transactions, you can demonstrate your track record and increase mortgage lenders’ confidence in your ability to meet mortgage obligations.
Keep in mind that as a self employed individual, you may encounter additional scrutiny during the mortgage application process. Mortgage lenders may request further documentation or seek clarification on specific aspects of your accounts to ensure accuracy and assess risk.
Being well-prepared and responsive in providing the required information will facilitate the process and enhance your chances of securing a mortgage.
If you do not meet the minimum accounts requirement, there are still options available. Speaking with a mortgage advisor in Nottingham who specialises in self employed mortgages can be invaluable.
They can provide guidance on mortgage lenders who may consider alternative criteria and offer expert advice on navigating the application process.
Do I count as self employed if I’m the owner of my own company?
From a lender’s perspective, when assessing your income as a self employed individual, they typically consider your salary and dividends. It’s important to note that if you own less than 25% of the shares in your business, lenders may treat you as an employee rather than a business owner.
Most mortgage lenders will combine your annual salary and dividends to calculate your total annual earnings. The amount you are eligible to borrow will then be determined based on a multiple of this figure.
This approach allows lenders to assess your income comprehensively, taking into account both your regular salary and any additional income from dividends.
It’s worth mentioning that there are also lenders who take a different approach and assess your income based on the net profit of your business, rather than focusing solely on salary and dividends.
This can be advantageous for directors who choose to keep their drawings or income from the business relatively low, as it allows them to demonstrate their ability to repay a mortgage based on the profitability of their business.
The specific criteria and calculations used by lenders can vary, so it’s essential to work with a mortgage advisor who specialises in self employed mortgages in Nottingham.
They will have a thorough understanding of the lending landscape and can help identify lenders who are more flexible in their assessment methods.
My accounts don’t reflect the true success of my business. What can I do?
It’s understandable that as a self employed individual, you may work closely with your accountant to explore ways to minimise your tax liability. When it comes to applying for a mortgage, the opposite approach is beneficial.
Declaring a higher income can actually work in your favour and increase the amount of mortgage you’re eligible for.
This can sometimes be a challenge since maximising deductions and minimising taxable income is often a primary goal for self employed individuals. While reducing your tax liability may provide short-term benefits, it can impact your mortgage affordability in the long run.
Mortgage lenders typically assess your income to determine the amount they are willing to lend you. The higher your declared income, the greater your borrowing capacity.
It’s essential to strike a balance between managing your tax obligations and presenting a strong income profile to potential mortgage lenders. This may involve working closely with your accountant to find a suitable strategy that aligns with your long-term goals, including homeownership.
By maximising your income on paper, you can demonstrate your ability to afford mortgage repayments and increase your chances of securing the desired loan amount.
Keep in mind that mortgage lenders have specific criteria and requirements for self employed borrowers. Working with a knowledgeable mortgage advisor in Nottingham who understands the complexities of self employed mortgages can be invaluable.
How much deposit do I need to put down?
The deposit requirements for self employed mortgages in Nottingham are generally similar to those for employed individuals.
The minimum deposit typically starts at around 5% of the property’s purchase price. If you have only one year’s worth of accounts as a self employed individual, you may be required to provide a larger deposit.
Lenders often consider a variety of factors when assessing mortgage applications, including the stability and reliability of the borrower’s income.
For self employed individuals with a shorter track record, such as those with only one year of accounts, lenders may perceive slightly higher risk. As a result, they may request a larger deposit to mitigate that perceived risk.
Putting down a larger deposit can have several advantages. It may increase your chances of securing a mortgage approval, as it demonstrates your commitment and financial stability.
Additionally, a larger deposit can potentially result in more favourable mortgage terms, such as lower interest rates or reduced monthly repayments.
It’s important to note that deposit requirements can vary among lenders, and it’s always advisable to seek guidance from a mortgage advisor in Nottingham who specialises in self employed mortgages.
Can I get a mortgage as a contractor?
Contractors who work on short-term contracts now have mortgage options available to them. With the increasing number of individuals engaged in contract work, mortgage lenders have recognised the need to adapt their criteria to accommodate this growing segment of the workforce.
If you can demonstrate a solid track record of contract work, lenders may consider using your “daily rate” as a basis for assessing your income, rather than relying solely on net profit.
Treating contractors as self employed individuals can be advantageous, as it opens up more possibilities for securing a mortgage.
Lenders understand that contractors often have fluctuating income due to the nature of their work, and assessing their income based on their daily rate can provide a more accurate representation of their earning potential.
When applying for a mortgage as a contractor, mortgage lenders will typically inquire about the remaining duration of your current contract. They want to ensure that your income will continue steadily, enabling you to meet your mortgage repayments.
While having a track record of previous contracts can be beneficial, some lenders may even consider offering a mortgage if this is your first contract, although this will depend on your specific circumstances.
Can I still get a self-cert mortgage?
Unfortunately, the era of “self certification” mortgages, where borrowers could state their income without providing sufficient evidence, is unlikely to return in the near future. The repercussions of past misuse and abuse of such mortgages have led to stricter regulations and lending practices.
Securing a mortgage as a sole trader, partner, or company director can be more complex compared to individuals in traditional employment.
The income assessment process for self employed individuals requires more thorough scrutiny, and lenders have varying levels of flexibility depending on the circumstances.
To set realistic expectations and navigate through the complexities, it is advisable to seek the assistance of a reputable mortgage broker in Nottingham.
Self employed mortgages often require careful planning well in advance. In cases where the income from previous years may not be sufficient, lenders may consider projecting future earnings to determine borrowing capacity.
It’s important to note that these projections must be based on accounts that have been submitted to the revenue authorities before initiating a mortgage application.
To maximise your chances of success, it is essential to have accurate and up-to-date financial records, including tax returns, accounts, and any other relevant documentation. This will provide lenders with a clear picture of your financial situation and help them in making an informed decision.
Working with a knowledgeable mortgage broker in Nottingham who specialises in self employed mortgages in Nottingham can be invaluable.
Date Last Edited: November 21, 2023
