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Self-employed mortgage webinar and Q&A

Following our recent business expenses webinar, many of you wanted to see a session on getting mortgages based on your self-employed income.


You can check out a replay of the webinar here. We’ve also compiled a selection of the questions asked during the event, along with the responses from Jamie Challis, Senior Mortgage Consultant at Crunch Mortgages.


Please note: This Q&A is for informational purposes only and should not be construed as advice.


 


Q: For the last 7 years, I have worked contracts of 1-2 years, separated by periods of backpacking for 6-9 months. Am I going to struggle to get a mortgage? Do I need to stay put in the UK for a while?


A: Ideally you’d want a minimum of 12-months continuous contracting immediately before the mortgage application.


Q: How will rates for a sole trader getting a mortgage generally compare with rates for ’employed’ people?


A: Lenders offer the same rates to employed and self-employed people.


Q: I am looking at getting a buy-to-let property. Are there any tax benefits by doing this through setting up a limited company?


A: If you currently own just one property and you purchase a buy-to-let as a limited company, you wouldn’t need to pay stamp duty on the additional second property. However, there are lots of considerations when choosing to do this, so we’d recommend getting professional advice based on your specific circumstances.


Q: I incorporated this financial year and I am the sole company director. I also have income from a buy-to-let. The buy-to-let isn’t owned by my company. What will I need to remortgage, proof of income wise?


A: Your proof of income can be as little as your latest year’s accounts or SA302. An income of £25,000 or more is generally the minimum that lenders expect to see, but some have no minimum income requirement. We’d suggest contacting us to discuss in more detail.


Q: I’ve gone from employed to self-employed since I took out my current mortgage, which is up for remortgage soon. I’m earning more as a contractor but can I expect a large interest rate increase because of the employment status change? Is it preferable to stay with the same lender or search the market again?


A: It’s definitely worth reviewing all mortgage options. We can attain mortgages for contractors with relatively short contracting history. Rates are very competitive at present, and you certainly won’t be penalised for being a contractor. Typically, if you’ve been contracting for at least 12 months, there are quite a few lenders that can assist.


In certain circumstances, we can find options for clients who have been contracting for less than this.




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Q: If you take out a mortgage in the UK, can you take contracts abroad (possibly for 3+ years) without issue?


A: There are lenders that may consider this, however the income would need to be in sterling.


Q: I’m a director of a limited company. I have 50%, my husband has 50%. He has over 10 years’ experience in our industry, I only have experience in our industry since I have started working within our business (six months). Would this make it difficult for us to get a mortgage together as I have no experience outside the company?


A: Yes, this makes things a little more difficult, as six month’s self-employed is too short a period for lenders to accept any of the income. However, if this is a contract worker situation, and if the application were in joint names, it might be possible to secure a mortgage.


Q: My limited company shares are split 50-50 between my wife and I. Is it worth exploring a joint mortgage as the potential take home is greater (double), rather than just assessing my earning capability?


A: Yes, it would be advisable to apply in joint names to use all of the income. Many lenders require married couples to apply in joint names.


Q: My wife is not working (taking care of baby). I included her in my limited company – she has 50% share so she can take dividends, so we have less tax on dividends overall. How this will affect my search for a mortgage?


A: As long you apply in joint names, this won’t affect your maximum borrowing based on using 100% of the salary and dividends drawn, as reflected on your company accounts.


Q:  When a mortgage provider asks for my income – as a freelancer with a limited company – do I input the amount my company took in for the year?


A: As a limited company, most lenders will use your salary and dividends to calculate your income. Some lenders can use different figures, such as profits. If you’re a contract worker, they can use your day rate contract to calculate your income – this would normally give you higher borrowing potential.


Q:  Since I’ve had my limited company I’ve predominately had one major client each year. Is that more frowned upon rather than having multiple clients?


A: The number of clients you have had is irrelevant when using your accounts figures as income verification. This is not something that lenders ask, or can determine from your profit figures.


Q:  I realise it’s difficult to say as it depends on the lender, but any idea on the percentage of deposit? Is it generally higher than 10%? Would a higher % make it easier?


A: Yes, a bigger deposit can make it easier. However, we can arrange a mortgage with as little as 5% deposit.


Q:  I realise it’s difficult to say as it depends on the lender but any idea on the % of deposit? Is it generally higher than 10%? Would a higher % make it easier? Thanks.


A: The minimum deposit that you would require would be 5% for a purchase. Having a bigger deposit can make it a little easier, and has the benefit of reducing the mortgage rates available.


Q:  I have been told by my mortgage advisor that I would not be able to move house and get another mortgage due to having less than two years worth of books – is this true?


A: While many lenders do insist on two years’ books, there are some lenders who can work with shorter self-employed periods. The minimum required would be two-year’s accounts.


Q:  I’m now coming to the end of a discount period. When I first took out my mortgage I was in a permanent role, but I’m now a freelancer. If I stay with the same lender, will I need to go through an affordability check on my self-employed income to get a new deal?


A: If you are just changing rate with no other changes, we can simply switch your rate without underwriting.


Q:  I don’t have an accountant and currently do my own accounts. Will this affect my ability to get a mortgage?


A: Providing you have completed a Self Assessment, you’ll need to provide SA302s and tax overviews as evidence of your income. For contractors, we can generally use current contracts to validate income.


Q:  I’m currently doing freelance work at evenings and weekends, alongside my full-time job. Will lenders take both my full-time and freelance income into account?


A: The lender will be looking for sustainability, so the hours need to add up and it needs to be clear that you haven’t simply taken on the extra work to get the mortgage. At least a year’s Self Assessment will be required to prove income.


Q:  For various reasons, my income this tax year hasn’t been great. However, I’ve earnt a lot more in the past few years . Will lenders just look at previous Self Assessments, or will they want to know how I’m doing in the current tax year?


A: If income has dropped then they will use the last available year’s accounts or tax returns.  These generally have to be from within 18 months.


Q:  I’m about to start contracting in the industry I’ve worked in for over 15 years. I’m also looking to move home. Will I be able to get a mortgage?


A: Yes, providing the new contract will have a value of £75,000 per year, £500 per day or an IT based role.


Q:  I have a full-time job and I work as a Hermes driver on the side. Can I use my Hermes income to help me get a mortgage?


A: Yes but you will need to have at least a year’s personal tax return.


Q:  What is the minimum income that I need to get a mortgage?


A: There is no minimum income, however lenders will use an affordability model so on lower incomes under £10k we often find the majority of available income is used up to cover standard living costs.  Therefore the available loan will be very low.


Q:  I’m in negative equity. Can I switch my mortgage provider to get a better rate?


A: Unfortunately, it won’t be possible to switch providers while in negative equity. However, many lenders will still be able to offer rate switches to existing customers. We’d suggest contacting your existing lender to see what they can offer to you. It would also be worth getting an up-to-date valuation for your property, as its value will be dependent on how much similar properties have been selling for recently.


Need more advice?


Our team of experts can help. Head over to Crunch Mortgages for more information.


 

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