The myth that mortgages are hard to come by for those who are self-employed consistently raises its head. The key difference between those who are self-employed and those who are in an employed position is that the self-employed candidate has to be able to evidence a ‘track record’ of performance in their business vs. an employed candidate who simply has to prove the salary that they are on.
Showing a historical financial record
The issue with proving a track record in business is not hard, as long as financial planning has taken place as part of the tax planning with the accountant. All too often we come across self-employed applicants who are successful in business only to then be advised by their accountant to declare as little income as possible for tax purposes. Nothing wrong with this as everyone would like to be in a position to reduce their tax burden, but not prudent when considering a mortgage application or when looking to buy a house and the issues that this can raise when trying to raise the level of funds required to re-mortgage or purchase.
Why is it important to consider future financial planning if you are self-employed?
Well if you are coming up to renew your mortgage, or are considering buying a house then this has to form part of your discussion with your accountant and how minimizing the income, that appears on your tax calculations and tax overviews will impact your ‘ability’ to raise the necessary mortgage funds. Lenders look at black and white figures and use this to work out an affordable mortgage amount based on the declared income at the time of the application.
You may well be in a position to ‘afford’ the mortgage but if the figures you declare as an income don’t stack up with the lender’s affordability model then you will be fighting a losing battle from the start. Working with your accountant and a qualified mortgage broker will help to identify if you have the necessary level of income that can be declared to be able to successfully apply for the necessary mortgage amount.
Offsetting some tax payments in increasing your provable income will come with benefits when considering your financial planning, when it comes to re-mortgaging or purchasing, as it will open far more lenders willing to provide the mortgage and therefore potentially save you thousands in mortgage payments and interest over the years that you hold your mortgage.
What are the benefits of using a mortgage broker if you are self-employed?
- Access to a wide range of lenders that will accept self-employed income
- Understanding of lenders criteria e.g. lenders that will accept 1 year, or latest years income figures, lenders that will accept net profit and director remuneration, lenders that will look at gross profit and not simply what income has been taken from the business, lenders that will consider looking at retained income in the business etc..
- Reducing the time and stress that it will take to find a suitable lender for your needs
- Processing all the administration of the application and lender chasing to allow you to focus your time on your business
