Key Post Getting a mortgage if you're self-employed

It's no secret that it's more difficult to get a mortgage if you're self-employed than it is if you're PAYE. Here's a few facts and pointers. It would be great if others could add to it with real-life experiences.

• In general, banks will look for at least 3 years' audited or certified accounts for your business. They will assess your "salary" for mortgage purposes as either your net profit if you're a sole trader or your salary if you're a company director - in each case averaged over the 3 years.
• If you're looking to get a bigger mortgage, you can make a case to a lender to add back some of the items in your accounts to your salary, e.g. depreciation, pension contributions.
• If your earnings have been consistent over a longer period than 3 years, then give the lender more years' accounts. It reassures them that your income is sustainable.
• If your income has dropped over the 3 years, tell the lender why and what steps you've taken to stop this, or else they'll be concerned that you're going out of business.
• If your accounts don't make it obvious exactly what you do (e.g. you own Murphys Pub) give the lender a mini-CV pointing out what skills you have. For example, if you have skills or qualifications that are rare and in demand, point this out as it will reasure a lender that you will easily be able to find regular work.
• Lenders will look for bank account statements in relation to both your personal accounts and your business accounts so keep both in good order: no unauthorised overdrafts, referral fees etc.

Liam D. Ferguson
www.FergA.com

Hi Liam

That is very helpful. Do they treat sole traders the same as directors of owner managed companies?

There are discussions elsewhere about whether directors should leave money in the company or pay it to themselves as salary. It may be a good idea to pay it to one's self as salary, if one is planning to apply for a mortgage over the next few years.

Brendan

This thread should be read in conjunction with this one:

Preparing for a mortgage application

Brendan Burgess said:

Do they treat sole traders the same as directors of owner managed companies?

Click to expand...

Pretty much, yes.

Brendan Burgess said:

There are discussions elsewhere about whether directors should leave money in the company or pay it to themselves as salary. It may be a good idea to pay it to one's self as salary, if one is planning to apply for a mortgage over the next few years.

Click to expand...

I think it would be a good idea to pay additional salary, yes. In theory you can make an argument to a lender if you can show that your company has been steadily its cash in the bank over a period of years, that this is a deliberate strategy and that you can access that money whenever you want towards your mortgage. But from a lending perspective, it's easier if you don't have to make any arguments.

self employed looking for mortgage approval

Please could you advise me how best to present accounts to the bank in order to get a mortgage? I am a self employed company director of a ltd company. I have a good income stream from this comaany for approx 12 years. The company owes me a sum of money by way of a directors loan (approx 9k) and i have a small comany overdraft which i use. All of these can be paid back from company funds today if this was the best approach to take.

Any advice on how accounts should look for the bank to approve a mortgage would be much appreciated.

If the salary you've been taking from your company has been consistent over the past 3 or 4 years and is sufficient in itself to qualify you for the mortgage you seek, then I wouldn't think it necessary to pay yourself back the director's loan. I would make the bank aware of the loan however and that the monies are available to you whenever you want.

If the overdraft is small, pay it off. Why pay interest if you don't need it?

Hi Molly

If the company owes you money, then you should consider having this repaid before taking a taxable salary. You should certainly not be taking salary at the top rate of tax while the company owes you money.

Brendan