If you are self-employed and are looking to get on the property ladder with your first mortgage, move home or remortgage, you may be wondering what lenders will consider, and what documents or proof you need to provide in order to have a successful mortgage application.
A lot of the time, lenders will need to assess your salary and dividends against your net profit, to help them determine a suitable mortgage agreement that is achievable for you to commit due to being self-employed.
To explain what else may be required when looking for a mortgage whilst being self-employed, we’ve asked Gemma Lawson, Property Finance Specialist to share her input on what lenders will look for, and how you can prepare in advance.
Take it away Gemma
When it comes to applying for a mortgage whilst being self-employed, lenders will assess in detail your salary and dividends vs profit. It is typically assumed that most lenders will use an average of the last 2 years directors’ salary and dividends to assess the affordability of a client. In addition to this, lenders will also assess all limited company directors who own more than 20-25% shares in the company as self-employed.
For some limited company directors, this can leave them short of the affordability they require, as they may not have drawn down all the available net profit within the business if they are not required to.
When using salary and dividends to assess the affordability, this sometimes leads to cases failing affordability, despite the director being entitled to more of the company’s profits. In the last 6 months, the majority of residential lenders have altered their affordability calculations to take into consideration the increased cost of living, which has impacted the total amount of borrowing available to clients.
There are mortgage lenders who will ignore the drawn down dividends, and instead look at your share of the net profit after taxation, as well as your director’s salary. In some circumstances, this can help boost the income being considered and provide a better affordability result, whilst not requiring you to change how you receive your income.
How we can help
Using a mortgage adviser at Signature means accessing a wide panel of mortgage lenders and years of experience dealing with mortgages for self-employed clients. We understand why your salary and dividends may not be reflective of the profitability of your business and have options to help.
Our expert advisers will assess your self-employed income to find out what the best solution for you is. We work with you to achieve the best outcome to help you meet your property goals. We understand that with mortgages there is no “one size fits all” approach and our dedication to our clients means we will tailor our advice to help you move on to your next chapter.