People are becoming increasingly more self-employed as time goes by due to working patterns changing. It’s not unusual for a person to move on from their first employer for another job. Self-employed individuals are rising in many departments such as Digital and Engineering, which offers more freelance roles. It’s natural that if you’re not receiving a guaranteed basic income then applying for a mortgage can be daunting.
But lenders are becoming more lenient these days, opening the possibility for self-employed and freelance applicants to have more of a chance to apply successfully for a mortgage. However, it still remains as a specialist area. Within this article there are some helpful tips on how to prepare yourself is you are self-employed for buying a home.
The minimum is one. It is normal self-employed specialist lenders who will work off a single year, though most high street lenders will want to be provided with two years’ accounts. Lenders know that sometimes a persons’ business will fall through so they want to see a good track record.
The average of your last 2 years’ worth of your earnings are usually the ones that are assessed. However, if your business is expanding then lenders may only work off the latest year.
Despite you technically being an employee of your own business, lenders do it to assess under this title unless you own less than 25% of the shares. Most lenders would add the dividend you have drawn to your annual salary to calculate your annual earnings. From this will come the amount that you can borrow and will be a multiple of this figure. However, there are lenders who will use your net profit as opposed to the salary/dividend for Directors who keep their drawings low.
A common question. It’s understandable that conversations with your accountant will consist of minimising your tax bracket. The opposite will apply when it comes to taking out a self-employed mortgage. Ultimately the more income that you declare, the bigger that your allowed mortgage.
The deposit for a mortgage is the same for most applicants which is 5%. However, if you only provide one year’s accounts, you may need to put down more.
Mortgage options for contractors are plentiful, especially as more and more people are working under short term contracts these days. If you’re able to show a good track record the lenders will consider your ‘daily rate’ instead of your net profit. Contractors have it a lot better due to lenders allowing to treat them as Self-Employed in Middlesbrough.
The lender will also go on to ask you about the remaining time that is in your current contract. They need to be able to have confidence about your income remaining ongoing to make sure that you are able to upkeep payments on your mortgage. It is possible depending on circumstances that you obtain a mortgage even if it’s your first contract.
Unfortunately, ‘self-cert’ mortgages were taken for granted in past years and so they may not return anytime soon.
Getting a mortgage can often be a lot more problematic if you’re a sole trader, partner or Company Director can be more complicated than it is for a person who’s employed. As always some lenders are more lenient than others and it’s advisable to gain Mortgage Advice in Middlesbrough from a Mortgage Broker in Middlesbrough from the start of the process as this will make the process more efficient from the start.