Self Employed Mortgages
If you are a sole trader, in a partnership, or own more than 25% of the shares of a limited company you’ll be classed as self employed by a mortgage lender.
Gone are the days of self certifying your income – all mortgage providers want to see exactly what you are paid and how.
We often hear from self employed clients who are worrying that they’ll no longer be able to obtain a mortgage. Yes, it can be a little more complex but providing you can prove your income you will get a mortgage.
Here are just a few examples of how lenders differ when it comes to assessing your income:
- If you are a limited company, many lenders calculate what you can borrow based on your salary and dividend. Some use your net profit instead, which can be beneficial if you leave money in your business.
- As a sole trader or partner some lenders will use your net profit only. Some may also take into consideration any salary you have also received.
Most lenders take an average of your earnings. This can be an average of the last 2 or 3 years, but some take the latest year only.
- As you can see, it can be quite a minefield knowing who is best placed to help. Our expert knowledge will make sure we get it right first time.
A contractor mortgage is no different in terms of the interest rate on offer. It is the way the lender assesses your income that makes a contractor mortgage unique.
Many contractors are self employed, usually via a limited company. So, rather than basing your income on the salary and dividend drawn from your company, they’ll use the value of your contract instead. This can make a big difference to the amount you can borrow.
More and more lenders are offering mortgages for contractors
Prior to 2008, if you were a contractor applying for a mainstream mortgage banks tried to pigeon-hole you into the ‘self-employed’ or ‘employed’ category. This meant a large part of your income was ignored.
Many contractors were forced down the more expensive ‘self-certified’ route where income evidence was not required and higher rates and fees were charged. There are now 12 mainstream lenders who have put in place a proper contractor lending policy. These lenders are able to use your full contract rate as the basis of their calculations. This means your borrowing ability is more realistic to your actual earnings.
More so, some of the more cautious banks and building societies have begun to relax traditional criteria. They will now accept a 1 year trading history and will use retained profit for limited companies, instead of salary and dividends only.
Hollybeck has access to all of the UK’s contractor mortgage lenders, so please get in touch to find out how we can help.