MORTGAGES
Self-Employed Director Mortgage
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Applying for a Self-Employed Director Mortgage
When you are thinking about applying for a mortgage, you are going to soon realise that things are not always going to be as quick and easy as you may hope. This is true if you are employed. It is even more the case if you are applying for a Self-Employed Director Mortgage.
If you are employed, then it may be relatively straightforward to prove your income. What if you are self-employed? This can mean that the process is tricky. However, there are ways that it can be made much easier to do than you realise.
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How long do you need to be trading to apply for a Self-Employed Director Mortgage?
One of the first things that you need to know is that you need to have been trading for at least 12 months to apply for and be approved for a mortgage. That said, the main bulk of lender in the market want at least 2 years’ worth of history. If you have less than 2 years accounts, you should ask an expert mortgage broker to speak to lenders who are open to a mortgage with 1 years accounts.
In an ideal world, you will be able to provide accounts that cover a full 3 tax years. However, if this is not the case for you, then you may find that a lender will accept a rolling 12-month representation of your accounts over the course of 2 years.
What do you count as your income?
When you are self-employed it can be hard to know how you can calculate your income. However, the amount that you earn forms a large part of the amount that the mortgage company will lend you.
How your affordability is worked out will depend on the type of company director that you are. It will also then depend on how much of the business you own. If you own less than 20% share of the company, lenders will generally treat you as employed and only take your salary into consideration. For Ltd Company Directors who own more than a 20% share of the business; it is the salary that is drawn + the dividends or the share of net profit. It can be really vital in ensuring you can borrow the level you need by speaking to an expert who understands the accounts, to find a lender who can give you the right amount, especially if you leave money in the business rather than taking dividends out.
Of course, this is not set-in stone and the way that it is calculated will depend on the lender that you choose. However, this will help you to have some idea on how much you are going to be able to raise with a Self-Employed Director Mortgage
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What documentation will I need to provide to apply for a Self-Employed Director Mortgage?
Whilst a standard employed person’s mortgage can be proven by a payslip or tax documentation. This is not the case with someone who is self-employed. The main documentation that you will provide are your finalised accounts and/or the SA302 form which is taken from HMRC. You may also need to provide the latest 3 months business and personal bank statements. These will then be used to confirm your financial situation.
As a limited company director, your accountant may have given you advice to take a base salary up to the tax-free limit and then to take dividends for a top up on your income to keep your tax liability down. Lenders can take these two elements and count them both towards your income. In this scenario your SA302 or Tax Calculation and tax year overviews would be what the lender is looking for. The lender would most likely average your most recent 2-3 years to gain an idea of your income. Of course, if you have only been trading for less than 2 years, this can make it harder, but you are able to get mortgages with 1 year’s accounts.
An example of this would be where your company made a profit of £150k and you took salary and dividend of £50k. The lender would base your earnings on this amount and in some cases this may not be enough.
What if I retain profit in my business?
There is another way of going about this if you are not drawing as much money out of your business and looking to get a self-employed director mortgage. This is using your retained profits, usually your share of the net profit after tax plus your salary. Some lenders can even consider gross profit and salary. This can be beneficial to be able to obtain a higher lending amount than with just salary and dividends.
Applying for a mortgage is not always easy no matter what your employment status is. However, when you are self-employed, it can be harder to prove your income. It can also be hard to show the lender that you are a responsible borrower and someone who will make regular payments.
This means if your profits were £150k but you only drew £50k salary and dividend, instead of using the dividends you could use the profit alongside the salary to drastically bump up your affordability. We have several specialist lenders who can help self employed directors to achieve their property dreams.
Why Choose Us
We are specialists in self-employed director mortgages.
Regardless of your situation, the best way to make your mortgage application easier is to speak to an expert mortgage broker. We know not only what you are going to need to provide in the way of documentation and evidence. But also, how to ensure that your application for a self-employed director mortgage is approved.
We have plenty of knowledge on the subject and how to get results for every possible situation. Contact us today to start your journey.
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FAQ
A mortgage is a loan from a bank or building society that allows you to purchase a property. The loan is repaid over several years with interest dependent on your personal financial situation.
A mortgage can be between one or more people. However, if you do not keep up your repayments, the lender can repossess your property.
All mortgage lenders have their own requirements. The following factors take a part in whether you will be given a mortgage offer, and how much the lender is willing to borrow you:
- Amount you wish to borrow
- Size of your deposit
- Employment status and income
- Credit rating
- Outgoings
- Existing debt
- Your age
- Length of the mortgage term
- Your credit status
- If you are applying solely or jointly
To be accepted by a lender, you need to assure lenders that you can repay your mortgage. One main aspect lender’s look at is your credit report to check your repayment history. Your credit file will include current and existing records on items such as credit cards, loans, overdrafts, mortgages, mobile phone/s, some utility payments and all accounts that have been open in the last 6 years. If your credit report shows arrears, defaults, CCJs, debt management plans or bankruptcy in the past, there are mortgage options available which we can help you with.
To get a mortgage you will need to save a deposit of at least 5%, but the more you save, the better your mortgage rate will be. If you have an existing property you own, you can use the equity in your property for this. Our skilled mortgage advisors can talk and guide you through the benefits and the difference in your monthly payments by increasing your deposit.
As soon as you have found the property you want to buy, our mortgage brokers will evaluate your personal needs and situations and recommend a mortgage product that is right for you. They will compare a wide variety of mortgage quotes, including products that cannot be found on the high street or comparison sites. This guarantees that you get the right deal at a right price.
If you agree to the mortgage product your advisor suggests, you will receive your Agreement in Principle (AIP). This will provide you with an estimated total of how much the lender is willing to borrow you and allows you to put an offer in on your ideal home.
If your offer is accepted, you will need to arrange a solicitor to deal with searches, surveys and contracts, which we can arrange for you. We manage the entire mortgage application process through to completion, liaising with your solicitor and lender to make sure your application is successful.
There are different mortgage options such as a remortgage. In this case we would recommend looking for a new mortgage deal approximately 3 months before your current deal expires. By beginning the mortgage process early it will allow you to prepare ahead of time to compare all the available mortgage products and submit your application. Do not worry if your mortgage is approved early as we will ensure that the completion date corresponds with your current deal’s end date.
A lot of mortgage lenders will lend you up to five times your salary. However, this all depends on several factors including your age, number of dependants and current financial commitments. Lenders will work out how much they will lend you based on what you can reasonably afford each month after you have paid your bills, credit cards, loans etc.
In addition, our mortgage advisers will assess your individual needs and situations to see how much you can realistically borrow before an application or credit search is completed. If you choose to continue with the application, our advisers will understand which mortgage lenders to approach to ensure you get the required loan amount.
In order to buy a property with a mortgage, you will need to save a deposit of at least 5%. However, the more you can save, the better your rate will usually be. There are a few exceptions to this as follows:
- If you already own a home, you can use the equity from your property for the deposit
- If you are a council tenant and are looking to buy your current home under the Right to Buy scheme, most mortgage lenders will now accept your Right to Buy discount as a deposit.
As property prices increase, first time buyers are struggling to save enough money to buy a home. In cases like this the government has therefore introduced ‘Help to Buy’ to allow first time buyers to get on the property ladder.
Our expert mortgage advisors are aware of various mortgage deals available and can help you decide which mortgage deal best fits your needs.
When buying a home, you will need to save enough money to pay for other factors and not just your mortgage deposit. This also includes paying for your mortgage fees, moving costs and legal expenses. We have listed below all the possible purchase and moving expenses you may have to pay, to help you with your budgeting. The exact fees and amount you will pay, is dependent on the value of the property you are buying and your chosen mortgage lender.
Mortgage booking fee: Some mortgage lenders will charge this to secure a fixed-rate or tracker deal.
Cost: £99 – £250
Mortgage arrangement fee: Some mortgage products will incur a mortgage arrangement fee, in addition to the mortgage booking fee. This fee is either paid upfront or added to your mortgage debt. If you chose to add it to your mortgage, the cost will increase over the lifetime of your mortgage.
Cost: £1,000 – £2,000
Telegraphic transfer fee: Needs to be paid to the lender to transfer the amount you are borrowing for the mortgage to the seller’s solicitor.
Cost: £25 – £50
Mortgage broker fee: If you use a mortgage advisor to arrange your mortgage for you, you will need to pay a fee or commission, depending on the value of your mortgage.
Cost: £197- £597. However, this may vary if you need to use a specialist lender
Valuation and survey fees: Charged by the lender to value the property you are buying. The cost varies according to which survey you choose:
Home condition survey: Most basic and cheapest of all the surveys and often used for new-builds.
Cost: £250
Homebuyer’s report: More in-depth survey, assessing the inside and outside of the property, and also includes a valuation.
Cost: £400
Building survey: A complete survey generally used for older or unconventional properties. Although they are the most expensive, they are certainly worth considering, as it could potentially save you a lot of money if any structural problems are found with the property.
Cost: £600
Higher lending charge: Can be charged by lenders if you borrow most of the value of the property.
Cost: Approximately 1.5% of the amount you borrow
Searches: Your solicitor will arrange for the local authority to check whether there are any issues that could affect the property’s value. The local council can charge a fee for carrying out these searches and may also request that a drains search be done at the same time.
Cost: £250 – £300
Legal costs: You will need to instruct a solicitor to carry out the necessary legal work for you.
Cost: £850 – £1,500 plus VAT
Stamp Duty Land Tax (SDLT): Charged on all purchases of UK land and property over £125,000. However, the amount you will pay is dependent on the purchase price of the property you are looking to buy, and whether you have owned a home before as follows:
First home: First-time buyers are exempt from paying SDLT on the first £300,000 of the purchase price of a property up to the value of £500,000. All purchases in excess of £500,000 will pay the standard stamp duty rates as follows:
- £0 – £300,000: 0%
- £300,001 – £500,000: 5%
Next home: If you are currently or have previously been a homeowner, you usually pay SDLT on increasing portions of the property price:
- £0 – £125,000: 0%
- £125,001 – £250,000: 2%
- £250,001 – £925,000: 5%
- £925,001 – £1.5 million: 10%
- £1.5 million+: 12%
Second property: If you are looking to buy an additional property, you usually have to pay 3% on top of the normal SDLT rates as follows:
- Less than £125,000: 3%
- £125,001 – £250,000: 5%
- £250,001 – £925,000: 8%
- £925,001 – £1.5 million: 13%
- £1.5 million+: 15%
For example, if you buy a next home for £275,000 the SDLT you owe is calculated as follows:
0% on the first £125,000 = £0
2% on the next £125,000 = £2,500
5% on the final £25,000 = £1,250
Total SDLT = £3,750
Information correct as of October 2021 – Source: www.gov.uk/stamp-duty-land-tax
Removal costs: Paid to the removal firm (if you choose to use one) to pack, transport and deliver your possessions to your new home.
Cost: £300 – £600
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