You are classed as self-employed if you a freelance and contract worker, sole trader or limited company direct (even if you an employee of your own company and treated as employed by HMRC).
Is the process of applying for a mortgage different if I am self-employed?
The process of applying for a mortgage if you are self employed is pretty much the same as if you are employed. Of course the lending criteria will differ in terms of the evidence required to prove income but the products available to you and rate is the same as employed applicants. It is especially beneficial to talk to an experienced mortgage broker, like me, if you are self-employed. The criteria involved for evidencing your income can get complicated so I will be able to use my in depth knowledge of the market to source a lender that is most aligned to your circumstance.
How do lenders calculate my affordability?
Assessing how much you can afford is done slightly differently for self employed folks. It also depends on the type of self-employment you’re in and the lender. Some lenders will be less comfortable with certain types of self-employment than others – so it’s worth speaking to someone like me to ascertain a lender that will treat your income in the most favorable way possible.
If you are a freelancer or sole trader, most lenders will take the average of the two most recent year’s net profits. Although I do work with a couple lenders that are willing to take the most recent year’s net profit into consideration – as long as profits have increased compared to the previous year the increase isn’t ‘sharp’. There are also some lenders, usually specialist, who are prepared to accept a single year’s tax calculation. This is especially helpful if you have just recently started your business.
Again, Limited company directors are treated slightly differently. Generally, most lenders will take the average of the past few year’s salary and dividend – although I do frequently tend to work with a lender that is willing to look at shares of the company’s net profits.
Criteria for contractors is in my opinion, the most strict. Lenders usually expect you to have been working in your profession for a minimum of 2 years, have a minimum of 6 months contract history – with a minimum of 1 month remaining on the current contract.
