Don’t let your heart sink when you go for a mortgage just because you are self-employed.
As a Mortgage Broker you are always keen to help – your business depends on it – but the fact of the matter is that some lenders remain wary of self-employed borrowers. This often translates into rigid and inflexible lending policies.
It doesn’t need to be like this, a specialist lender will always guide you through the process personally if that’s what you prefer. There are some myths to dispel and some universal tips and pointers to give you to give you more confidence that a mortgage can be found for you..
Myth 1: Income must be assessed solely on the applicant’s salary and dividends
The truth: Income can also usually be assessed based on the applicant’s share of pre-tax net profit in the limited company, as well as the salary they earn.
This figure will generally be shown under a heading: ‘Profit on Ordinary Activities before Taxation’ or ‘Operating Profit before Taxation’. This is then ordinarily added to the salary that the director earns (found under the heading: ‘Administration Costs’ Or maybe ’Outgoings’.)
Myth 2: Declining/fluctuating turnover or profitability is an insurmountable barrier to getting a mortgage if you’re self employed
The truth: Realistically, being self-employed is virtually guaranteed to bring a mixture of good and weaker years.
Flexible lenders take a pragmatic view of income fluctuations and do lend where income has reduced, as long as there is rationale for the change. The key is to be prepared to satisfy them that the business will sustain future serviceability – we will prepare your case with this information to hand and you’ll stand a good chance.
Myth 3: It’s impossible to extract the relevant information from accounts submitted by a limited liability partnership
The truth: It’s eminently possible but it’s all about knowing where to look…
Look for a heading which says ‘Net Profit – Divisible as Follows’ or similar, which should confirm the share of the partnerships profit that your client is entitled to.
Myth 4: There’s no way forward when the accounts relate to a period which ended some time ago (and especially when they are over 12 months old)
The Truth: The accounts can often be supplemented with additional information to enable a balanced decision to be made
Ask your accountant to provide projections based on turnover and profit to date or consider obtaining management accounts.
Myth 5: You’re on your own
The Truth: Niche lenders are set up with underwriters with experience in interpreting these accounts
If you are an otherwise good applicant who has accounts which we don’t quite understand, or which don’t seem to quite tell the story that the applicant is describing we can speak to an experienced lender underwriter who regularly reviews and interprets company accounts.