For all the perks that come with running a limited company, easy mortgage applications are certainly not one of them.
Seasoned contractors might recall a golden age when the promise of your estimated earnings and a little goodwill were enough to earn a stamp of approval on your application. They might choose to forget, however, this type of borrowing being grossly abused, eventually earning the dubious sobriquet ‘liar loans’.
The fluctuating nature of dividends and salaries, combined with a tender economy means banks now see company directors as a high risk and are often reluctant to offer any substantial sums. This is a not-insignificant problem, and one our very own CEO has run across.
But don’t despair! Every cloud has a silver lining, and this is no exception – it’s just a case of making the right preparations and understanding your options.
Find a lender
Firstly, you need to remember that every lender has its own criteria, flexibility and most importantly, discretion! Finding the right one for you is your first hurdle; you’re more likely to be approved by a smaller lender who makes personal decisions, instead of relying on one of the autobots that inhabit the high street.
Crunch Mortgages can assist you with finding suitable lenders our specialist self-employed mortgage brokers can search the whole market to get you a deal where others see only problems.
You need to demonstrate to the lender that you are a reliable investment and have the capability to pay back what you borrow. A good rule of thumb is to not bite off more than you can chew when applying for any loan, so make a realistic estimate of what you need and what you can afford.
You’ll need to supply at least two years’ worth of company accounts, preferably signed off by a chartered accountant – we can help there too.
Have your projected turnover for the coming financial year available with the details of any confirmed contracts. It reflects better if you have your contracts spread out over the duration of the year to show your income will not dry up at any point. You can also supply your current years’ accounts to date using our nifty on-the-fly reporting tools.
You’ll need to provide details from your P60 and dividend vouchers to show what income you’ve taken, and explanations why it may have fluctuated. Lenders look favourably on consistency, so try to either display a steady income or show your dividends increasing. Large gaps in a year where dividends haven’t been withdrawn (e.g. retained profits or loss in profit) could be detrimental to your application.
A larger deposit can often swing the scales in your favour, as it means less interest to pay back. But make sure you speak to your accountant to get advice on the most efficient way to get the money out of your company, you don’t want an unneccessary tax bill!
We’ve got a handy Self-employed mortgage checklist of the things you need to sort out to make things go smoothly.
It almost goes without saying that a decent credit rating is going to stand you in good stead. You can check your credit rating easily online for a fairly negligible cost.
Recent changes in the corporate makeup of your company (e.g. changes in directors or shareholders) can affect your application as it is unclear if it may have repercussions on your income.
Some lenders may consider you a safer investment if you can demonstrate you have an abundance of contracts, or more than enough reliable sources of income to warrant the mortgage.
To dispell some of the myths around self-employed mortgages, we sat down for a chat with Jamie Challis of Crunch Mortgages.
If you have further questions, you may be interested in reading the self-employed mortgages Q&A which took place after the webinar, in which Jamie answered questions from people just like you.
Stack of Books designed by Cengiz SARI, Money designed by Alex Berkowitz from The Noun Project,