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Residential mortgages for business owners and the self-employed

There are now more than four million companies registered in the United Kingdom. Data from Companies House show that in 2017/18 alone, there were 620,285 new incorporations. It’s one of the big life events setting up on your own; the excitement, pressure and new challenges. We know first-hand, we are business owners too!

We appreciate what a balancing act it can be, but fulfilling your personal financial objectives is equally as important as your business’ success. For many new business owners, the thought of securing a residential mortgage might be quite daunting. But, whether you are a first-time buyer, climbing the property ladder, or re-mortgaging after making the leap from PAYE employment, we are here to help.

Navigating the process

The great news is, that partially thanks to the rapidly expanding gig economy, mortgage lenders are embracing contract workers, the self-employed and limited company owners. High street banks and building societies have relaxed their rules and are now competing with specialist lenders. Finding the most appropriate mortgage now requires similar considerations to our salaried friends.

You may have to jump through some more hoops, but there are significantly more options than a few years ago. Our dedicated team will search the whole of the market to find the right mortgage for you.

Primarily, your credit score remains one of the most important factors. You can check yours and your history with reference agencies like Experian or Equifax. After however, it comes down to your income.

Evidencing income

The longer you’ve been trading, the better. Typically, two years of accounts are required by most lenders. The best way to prove legitimate income is to demonstrate what you’ve reported to HMRC, even if your accounts have been designed to minimise your tax bill.

Depending on how your business is structured, i.e. as a contractor, a self-employed sole trader, or a limited company director, will dictate the way in which providers will want proof of your income:

  • Contractors, typically earning a day rate, will have their rate multiplied by the number of annual working days. Lenders will then compare this to actual earnings during the past year, or ideally, longer.
  • Sole traders, who often have irregular income, will most likely need to prove at least two or three years evidence of accounts. They will have ideally been put together by a qualified, chartered accountant to ensure reliability. Income over the period will be averaged to base the mortgage offer, and a downward trend in turnover could prove detrimental.
  • Limited company directors have a little more flexibility, there are two common methods used. The first being a combination of salary and dividends (now recognised as a legitimate income source in mortgage providers eyes). The second; considering the director’s salary in addition to retainer profits. The level of equity you hold as a director will affect both options.

If you’ve recently changed the trading style of your business you may face additional hurdles, but it’s certainly not impossible.

Deposits and rates

Like an employed applicant, you will usually need at least a five percent deposit of the property value. Naturally, the bigger the deposit, the simpler it will be to secure credit and receive the most competitive interest rate.

You might already know, but the loan-to-value ratio (LTV) is the percentage of property value your equity will represent (deposit minus value). Preferential mortgage rates are usually available dependant on a larger LTV. The bigger your deposit, the better. For higher value properties worth a million or more, you’re very likely to need a deposit of 25%.

Planning ahead

It’s incredibly valuable to draw up a personal budget linked to your projected business income. Consider that historically low interest rates are likely to rise at some point; assess whether your projected business growth provides scope to cover increased monthly repayments.

Above all, professional advice tailored to your circumstances will give a full view of all the mortgages available and ensure it will remain affordable. With our help, you can rest assured you’re making informed decisions that will allow you to achieve your objectives, whether you’re buying for the first time, moving home, looking to reduce your repayments or buying an investment property.

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