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      • Self Employed Mortgages
        Essex Home Finance
      • Self Employed Mortgages
        Essex Home Finance

      How Much Can I Borrow? - Self Employed


      Our Self Employed customers have a wide selection of options, depending on how the business has been formed, and how they pay themselves.
      Mortgages for the Self-Employed are not necessarily more expensive, it just depends on which lenders are right for your individual circumstances.

      Sole Trader

      Lenders are interested in your declared Net Profit figure, as shown either in your Business Accounts and/or your personal Tax Return.

      Most Lenders will require a minimum of 2 full years of trading as a company, although we have some specialist lenders that will look at just 1 year of Business Accounts.

      If your Net Profit is increasing each year, the majority of mortgage lenders will take an average of the last 2 or 3 years. If your Net Profit is reducing, lenders will typically take the last years Net Profit as the figure to calculate the amount you can borrow.

      Partnership

      The rules are very similar to a Sole Trader, the Net Profit shown on the Business Accounts and/or your personal Tax Return - see the Sole Trader Tab for more details.

      We will also need to know your % ownership within the partnership, typically it will be an equal share of the business, but we can only allocate your share of the profits to you.

      Limited Company Director

      As a Limited Company Director, we have a number of ways of assessing your income.

      % of Net Profit
      Your Shareholding will show your entitlement to the profit of the business - we have a few lenders that will use this, which can be a very favourable if you retain profit within the business.

      Salary and Dividend
      A more traditional means of assessment - simply the addition of the declared dividend and salary as shown both in the company accounts and your Personal Self Assessment - SA302

      Net Profit
      Some lenders will look at the level of Net Profit within the business, assuming the individual owns 100% of the business, or the ownership is between the applicants.

      For most lenders you will need 2 full years' trading, and Company Accounts will be needed for assessment. If company profitability is improving, then the lenders will look to use an average of the last few years. If the profit is reducing then lenders will want to know why performance is deteriorating, and will take the last years profit in isolation.


      Example :

      Mrs M is a Company Director, and for the last 2 years she has taken a £10,000 Salary and a £30,000 Dividend. The Company has made a net profit of £75,000 each year, and Mrs M owns 100% of the business.

      With lenders that will only accept the salary and Dividend income :

      Using Declared Income : £40,000 = £190,000 Maximum Mortgage

      If we use a lender that will consider the company Net Profit rather than the declared personal income :

      Using Net Profit : £75,000 = £356,250 Maximum Mortgage

      Difference - Nearly Double the amount of Mortgage!

      Contractor

      As a Contractor, you will typically work for one employer and whether you have formed a Separate Limited Company or you work on a Sole Trader basis, as well as the options listed above, we can use the 'Contract' value.

      Typically a contract will be priced on a 'Per Day' or 'Per Week' basis - this will need to be very clearly stated in your contract, along with the term of the contract.

      You also need a track record of contracting - this differs from each lender, but if you have had at least 1 contact and it has been renewed at least once, we have a good chance of it fitting with a suitable lender.


      Example :

      Mr H is a Contractor on £2000 per week, for a whole year.

      On his tax return, he declares an income of £45,000 per year after allowable deductions are accounted for, on his Tax Return.

      Assuming we have nothing else that needs to be assessed, Mr H could borrow :

      Using Declared Income : £45,000 = £213,750 Maximum Mortgage

      Using Contract Value - £2k x 46 weeks (Assumed Yearly Maximum) = £437,000 Maximum Mortgage

      Difference - £223,250 extra Mortgage - Big Difference!


      As you can see, there are a number of different ways your income can be assessed, and depending on how your accounts and profit are shown and recorded. The quoted figures are examples, and your individual ability to borrow will be subject to the usual Affordability checks and individual assessment.

      As Mortgage Brokers, we have access to a wide variety of lenders, both High Street and Specialist providers, and as such we will be able to work through your best options - we will need the right paperwork and information to help you and to help the lender.


      Self-Employed Paperwork

      To help you can download our Packaging List - Click Here for a copy. Other Documentation we will need :

      Sole Trader / Partnership

      Last 2 Years Company Accounts
      Last 2 Years SA302 (2015/16 and 2016/17) & Confirmation Tax Paid up to Date

      Limited Company Director

      Last 2 Years Company Accounts
      Last 2 Years SA302 (2015/16 and 2016/17) & Confirmation Tax Paid up to Date
      Confirmation of your % Share Ownership

      Contractor

      Copy of your Previous Contract
      Copy of your Current Contract
      If you have less than 6 months on your Contract, we may need a copy of your next Agreement
      Same as a Sole Trader / Limited Company as above

      SA302 - Confirmation that you have submitted your Personal Tax Return, either from HMRC directly or a version from your Accountant.

      Some Lenders may want to see your last 3 / 6 Months Business Bank Statements - we will advise you if required


      Frequently Asked Questions

      We get asked a lot of questions about income evidence and what is affordable. A selection of popular Q's and A's are below :

      Can i use income from this current Financial Year?

      Unfortunately not - as a Self-Employed individual or company, a lender can only look at the historic performance of the company - so the last 2 or 3 years of your declared income (Tax Returns) or the Company Accounts.

      If you are a Contractor, then the lender will want to see that you have at least 6 months' work, and if there is an increase in the value of that contract, they will look to use that improvement where possible.

      I don't have any accounts - can I still apply?

      As Sole Trader or Partnership have no legal requirement to publish accounts, so we could just use the Declared Income from your individual Tax Returns.

      If you are a Company Director then we will need to have Company Accounts - typically your last 2 or 3 years' of Reports.

      It is good business practice to use an Accountant to ensure that you structure your business and how you reconcile your income and expenditure properly, so it is very rare we find anyone without an Accountant!

      I have only traded for 1 year - Can I get a mortgage?

      We have a number of specialist lenders that will consider cases where our client may only have 1 full year of Accounts - there will be an assessment of that individual, about their background and expertise, and previous employment.

      If we have a Computer Technician that has been in the industry for 10 years, and has become 'Self-Employed' for the last 15 months in that same role, that is a situation some lenders will be willing to help with.

      If that same person went into a completely different industry, that might be a different story!


      But if you have just started your Self-Employment, then we will struggle to help you until we have some Historic performance to consider

      Surely my Bank Statements show i can afford the mortgage?

      A common question!

      Your Bank Statements and your declared income can be very different amounts - the Bank Statements will also be showing 'Current' income and not your 'Historic' performance. For some Sole Trader firms the Personal Bank Account could be showing the 'Turnover' rather than 'Profit' if it has been used for trading purposes.

      We would always recommend a separate bank account for your business and personal transactions.



      Let us know if you have found this information useful!


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      Essex Home Finance Ltd is an Appointed Representative of Mortgage Intelligence Ltd which is authorised and regulated by the Financial Conduct Authority under number 305330 in respect of mortgage, insurance and consumer credit mediation activities only.

      Registered address: 1 High Street, Chelmsford, Essex, CM1 1BE. Registered in England & Wales under number 10607263.

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