Many can see the concept of being self employed as a barrier when trying to obtain a mortgage.
The good news is, with an expert mortgage broker in Sheffield with you every step of the way, you have a greater chance of being accepted on the property ladder.
The first thing to be aware of is that there are no specific uniformed lending criteria for sole traders and limited company directors.
The most lender has its individual policy, and the amount they will allow you to borrow can broadly differ from one lender to the next.
Looking at sole traders, A lender will calculate the amount you will obtain for a mortgage based on your net profit.
You’ll find that most lenders average your last 2 or 3 years’ net profit. However, some lenders out there will consider using the latest year.
If your net profit has reduced, the lender will usually go off last year and will require an explanation of why it’s decreased.
Suppose you are a limited company director who owns 20% or more in company shares. Lenders will class you as self employed, and similar rules will apply as above in terms of averaging.
You’ll find that there are different circumstances where a limited company may be performing well in terms of net profit. But the directors are not drawing their dividends.
These applications can often face hurdles in the maximum borrowing capacity, as there is not as much income that the applicant can declare.
However, it’s not the end of the road. Some lenders will consider using your share of the net profit rather than salary plus dividends.
The minimum trading period for self employed applicants in Sheffield or limited company directors is one year. Although, there are mortgage lenders who will want to see more than that in some cases.
Now that you know the hurdles to get a mortgage while being self employed, it can easily be seen as a complicated business. Just remember to evidence your finances.
If you would like to talk about your situation, please feel free to get in touch. We’ll talk you through your options and send you a form for your accountant to complete.
The form will help us tailor-make a recommendation designed to meet your exact circumstances.