How Self-Employed Applicants Are Assessed
When applying for a self-employed mortgage, your application will generally fall into one of the following categories:
Sole Trader
As a sole trader, your income is declared using self-assessment through HMRC. You'll need your SA302 form, which outlines your total income and tax paid. Lenders base their calculations on this document.
Partnership
In a partnership, lenders will assess your individual share of the profits. Each partner's income is considered separately.
Limited Company
For directors of limited companies, lenders will consider your salary and dividend payments. However, profits retained within the business may not be factored into the lender's calculations, potentially complicating your application.
If you're planning to change your business structure, it's advisable to wait until after securing a mortgage, as such changes can adversely affect your application. For personalised advice, always consult a qualified mortgage broker like Finance Factors.
How Lenders Assess Day Rates & Improving Your Chances
How Lenders Assess Day Rates
Contractors can also apply for self-employed mortgages. Lenders may calculate your annual income based on your day rate. They typically multiply your daily rate by the number of working days per week, then extend this over a year, usually accounting for 46-48 working weeks. Be prepared to show an ongoing agreement or past contracts to demonstrate long-term security.
How to Improve Your Chances of Being Accepted
1. Use an Accountant: Ensure your accounts are prepared by a certified or chartered accountant. Some lenders won't consider applications without professionally prepared accounts.
2. Complete Three SA302 Forms: Most lenders require tax calculations for the past three years. Ensure these are up-to-date and accurate.
3. Save a Bigger Deposit: A larger deposit, typically at least 10%, can significantly improve your chances of securing a favourable mortgage rate.
4. Get Your Finances in Order: Enhance your credit rating by paying off debts, correcting any errors on your credit report, and being mindful of your spending habits. A clean financial record can make your application more appealing to lenders.
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Self-employed Mortgages: Frequently Asked Questions
What is a self-employed mortgage?
A self-employed mortgage isn't a distinct product but refers to how lenders assess income for self-employed individuals, including sole traders, partnerships, and limited company directors.
How do lenders assess income for sole traders?
Lenders assess sole traders based on their SA302 form from HMRC, which outlines total income and tax paid. This document is crucial for mortgage calculations.
What documentation is needed for a partnership mortgage application?
For a partnership, lenders assess each partner's share of the profits. Documentation should detail individual earnings, typically declared through self-assessment forms.
How are limited company directors assessed for a mortgage?
Lenders consider a limited company director's salary and dividend payments, but not profits retained within the business, which can complicate the application process.
How can contractors improve their chances of mortgage approval?
Contractors should present ongoing agreements or past contracts to demonstrate income security. Lenders often calculate annual income by multiplying the daily rate by working weeks.
What steps can improve the chances of being accepted for a self-employed mortgage?
Steps include using a certified accountant, providing three years of SA302 forms, saving a larger deposit, and maintaining a clean financial record to enhance credit rating.
Why is it important to have professionally prepared accounts?
Many lenders require accounts prepared by a certified or chartered accountant to ensure accuracy and reliability, which can significantly influence mortgage application success.
How can Finance Factors assist with self-employed mortgages?
Finance Factors offers personalised mortgage advice, helping self-employed individuals in Maidstone navigate the complexities of mortgage applications and improve their approval chances.
Explore more about our Mortgage Protection and Building and Contents Insurance services.
Phone: 07785 954074
Address: 2 Kingsbroom Court, Kingswood, Maidstone, England, ME17 3ST
Email: kbl@financefactors.co.uk
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE OR OTHER LOANS SECURED AGAINST IT.
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