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Think carefully before securing other debts against your home.  
Your home may be repossessed if you do not keep up repayments on your mortgage

 

Self-Employed or Limited Company Director?

Obtaining a mortgage when you are self employed can be a touch challenging if not handled correctly.  Some lenders are very much self-employed friendly whilst others will make you jump through hoops.

Different lenders have different ways of assessing risk, and some of those risk basis just don’t suit certain situations.  Its nothing personal.  But this is where Max Mortgages come in.  First we will choose the most suitable lender for you based on your situation & requirements.  Then as we have built up strong relationships with many lenders, we are able to discuss your case and either provide further explanations that otherwise may not be entertained or obtain a special exception for your case.

So if you are self employed, it is important to have the correct income evidence in the right format.  Lenders will not engage in complicated accountant explanations to determine your income levels.  So a good accountant will help ensure your various tax returns are undertaken in the correct format which not only meet HMRC requirements, but also the requirements of lenders.

Lenders will like to see two years Tax Calculations (SA302s) and the corresponding Tax Year Overviews, and your income will be often averaged across those years.  Some will use three years whilst the odd lender may as an exception work off the latest year.  Lenders may also work off your finalised trading accounts, but the tax returns still need to support the personal income level.

Some accountants will not prepare SA302s as there can be occasions when there is no need as other instruments can be used for HMRC purposes.  But what meets HMRC regulations may not meet lender requirements.  So just like your tax advisor may point out that a SA302 is not a legal requirement, the lender can point out that lending you money is also not a legal requirement!

We often liaise with the tax advisors of our client’s to help ensure they prepare the necessary income evidence in the acceptable format.  So all in all, getting a mortgage if you are your own boss may not be as difficult as you think.  Speak to us if you are thinking of buying a property or remortgaging and we can ensure you are in the best possible position at the time of making that application whether it’s for your dream home, investment property or remortgage.

 

Click here to contact us or feel free to read on

 

If you are self-employed you need to look into :

  1. Suitable Tax Calculations (SA302s)  These are produced by HMRC once you have made your tax returns.  Once they are generated by HMRC, these can be downloaded from the HMRC website.  Your tax advisor can also do this for you or they may produce these from their own accounting software.  An SA302 is your tax calculation for the tax year
  2. Suitable Tax Year Overviews (TYO).  Along with the SA302s, the TYOs are also produced at the same time and are a summary of your tax account.  These too can be downloaded from the HMRC website and are literally on the same section as the SA302. Your tax advisor can also do this for you or they may produce these from their own accounting software
  3. Finalised trading accounts.  Your personal income will be determined by these and often these will be prepared by your accountant before any tax returns are made.  Not all lenders require these
  4. Accountant’s Reference in some cases.  SA302s and TYOs are from 6th April to 5th April of each year.  However your trading year may be different and the SA302s may be out of sync.  For example if you started trading in October, then your SA302 will also include the 6 months from April to October where there was no turnover, and thus reducing the average income. Your accountant however maybe able to provide figures for the actual trading months based on your year-end and show a more accurate reflection of your turnover.   Not all lenders accept an accountants reference
  5. Ensure your accountant is suitably qualified such as Chartered or Certified
  6. Ensure your business bank statements are up to date and try to be strict with your account customers who owe you money.  Its better for it to be in your account rather than theirs

 

Directors and/or Major Shareholders of Limited Companies

  1. Finalised trading accounts.  These need to be finalised and signed off by your qualified accountant.  For self-employed applicants, the SA302s & TYOs may suffice.  But for Limited company directors or shareholders, most lenders like to see the performance of your company which is the source of your income.  On a further note, they may also be prepared to lend based on your salary plus net profit.  Using retained profit for lending purposes can help you obtain a larger mortgage amount without paying additional personal income tax on excessive drawings!
  2. SA302s & TYOs will also be needed to confirm your personal income such as salary and dividends.  PAYE and tax vouchers will not be sufficient proof of your total income
  3. Contractors. The participating lenders will treat you as fixed term employees and use your annualised day rate to determine your salary.  Many simply ask for your latest contract and CV
  4. Ensure your business bank statements are up to date and try to be strict with account customers that owe you money.  Again its better for it to be in your account rather than theirs

 

Agency workers / Umbrella Companies

    1. Technically you are employed and will have payslips. But it is worth seeking advice from a tax advisor and seeing whether it is worth you submitting tax returns. No additional tax may be payable as this has been collected via PAYE.  An SA302 is not only for the self-employed and a SA302 can also help employed people prove their income.  Akin to a P60, the SA302s & TYOs will provide a lender with simple documentary proof of your income in each tax year
    2. Check to see whether your contract specifies any minimum hours.  Some offer nominal annual hours but lenders may insist on treating you as a contract worker on a day rate

 

So long as we ascertain your situation correctly and select the most suitable lender, there should not be any major issues in buying that property!

 

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