Self Employed Mortgages

Unfortunately, it’s relatively common for self-employed individuals to get turned down by a lender. You may also find that you have limited access to lenders because of your employment status.

In the first instance, it can be helpful to understand how lenders view you if you are self-employed and why getting a mortgage is so challenging. Self-employment can - sometimes – come with cash flow challenges, sporadic income and difficulties getting paying clients. While this isn’t necessarily the case (you may have significant income, no cash flow issues and a solid book of business), lenders will still move with extreme caution because they simply see self-employment as riskier than employment.

Most lenders will be looking for comfort and want to see regular income and solid earning power. If you have a strong financial background and generate a good income, presenting this information to lenders upfront and shining a light on the strength of your financial position will be very helpful for your case.

How your broker approaches negotiating a mortgage will depend on what form your business takes, how you derive your income and how long you have been operating. These factors can influence how a lender will view you and what you will be able to borrow. Some common scenarios include:

Mortgages If You Have A Limited Company

Often, if you are a company director of a limited company, you won’t draw out all your profits from the business. This is logical given you are unlikely to need all your company’s revenue to cover your month-to-month living expenses, but also because drawing out all your revenue would increase your tax liability quite significantly.

However, lenders will base your application on your monthly salary, not the revenue generated by your business. Overall, this can impact what you will be able to borrow if a lender is looking at affordability based exclusively on your salary.

Your broker will start by assessing how you’ve structured your company. If you generate significantly more profit than salary, Enness will present these figures to lenders, generally opening up the way for higher-value borrowing.

Taking Yearly Revenue Increases Into Consideration

If you are self-employed, lenders will usually look at what income you’ve generated over the past three years as the basis for discussions. However, as your business evolves, you may change how you operate, positively impacting your profits. If this has happened to you at some point in the past three years, Enness will be able to negotiate a mortgage based on the figures of the period after the revenue increase (e.g., this year’s figures or the revenue you’ve generated over the past two years or 18 months).

While this is a possibility, it’s important that you can sustain the revenue increase in the long term, and you aren’t simply experiencing a one-off upturn in profit. Financial projections and management information (including profit & loss statements for the period in question) will be essential.

Using Company Director’s Loans

Many of Enness’ self-employed clients put significant capital into starting their own business. In some cases, you may continue to do so over time as you grow your company. While anything you loan to the business will be paid back tax-free, it’s this tax-free status that can be challenging to navigate if you are self-employed. While you may have significant capital invested, lenders won’t consider loan repayments as income. This is challenging if you will be reimbursed a very substantial amount, which isn’t uncommon.

Some lenders will consider directors loans as part of your mortgage application, however. Working with these lenders is often highly advantageous if you are looking to borrow a significant amount and have invested a lot of your own capital in your business which will be repaid in the short to medium term. Not every lender can consider directors loans, but Enness’ team knows exactly the lenders that can and will be able to present your application to them directly.

In the bank’s eyes, self-employed individuals are less likely to have a regular and stable monthly income compared to those who are employed, although every lender works differently. Affordability now dominates mortgage applications, requiring both self-employed and employed individuals to provide in-depth details of both their outgoings and expenses, as well as overall income.

The good news is, the assessment of mortgages for self-employed individuals has improved dramatically – especially when the case is presented correctly by a broker. Although being self-employed is no longer as prohibitive as it once was when it comes to getting a mortgage, finding a lender willing to take a holistic view of self-employment all comes down to access.