How to secure a mortgage when you're self-employed

How to secure a mortgage when you're self-employed
Enterprise Nation
Enterprise Nation
Enterprise Nation

Posted: Thu 24th Sep 2015

Mortgage providers lend on the basis of evidence of a safe and solid salary. This kind of evidence isn't always available if you're self-employed with some months bringing in more work (and income) than others. Welcome to the launch of new mortgage products, specifically aimed at the self-employed.

Ipswich Building Society is the latest mortgage provider to launch a mortgage focused on the self-employed after its own research showed 77% of self-employed workers are worried about having a limited choice of mortgage providers and nearly two thirds (63%) said mortgage providers expected them to jump through more hoops than the employed during the application process.

Another provider in the market is specialist provider, Kensington Mortgages, which launched a product taking into account the share of net business profits plus salary for company directors.

The mortgage, launched in June 2015, is available to sole company directors and their partners. In the company's launch release, the product was described as: "designed to reflect the true earnings of successful entrepreneurs who choose to keep some profit in their business rather than draw it all down as salary".

This is an improvement on the vast majority of lenders that only consider salary and dividends when assessing the affordability of self-employed customers.

The below example is based on a sole company director who chooses to take a salary of £10,000 and dividends of £40,000

Mortgage Table

By considering profit as well as salary, Kensington would be able to base its assessment on both the salary taken by the customer and the company profit for the financial year.

Salary: £10,000
Profit for the financial year: £94,000
Income Kensington could use for affordability: £104,000

Do bear in mind that as Kensington is a specialist mortgage provider, rates are generally higher than high street lenders.

To apply for a mortgage. research the financial providers and rates and follow these useful tips from Julia Rampen, deputy editor of Mirror Money Online on five ways to secure a self-employed mortgage which includes steps such as hiring an accountant and keeping costs in the business low, so you can save for a larger deposit.

This post is published in association with Legal & General.

For tips on business protection and company set-up, download a free version of the Rough Guide to Work and Money.

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