Self-Employed Mortgage First Time Buyer

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Self-Employed Mortgage First Time Buyer

Charlie talks to us about mortgages for self-employed First Time Buyers.

How does getting a mortgage as someone who is self-employed and a First Time Buyer work? Is it difficult?

The process is no different for someone who is self-employed, but it can be more difficult.

The biggest difference is how the application will be assessed. When you’re employed, for example, your income is worked out from your wage slips and your annual salary.

When you’re self-employed, it’s based on your respective trading year figures. If your latest year is lower, the lender is likely to go off that, which can reduce your potential borrowing.

How many years do you have to be self-employed to get a mortgage as a First Time Buyer?

If you’re self-employed, you would need at least one year’s full tax calculations. But with most lenders, we require a minimum of two years’ calculations.

How much can I borrow for a mortgage if I’m self-employed and a First Time Buyer?

At the moment, as of June 2024, income multiples are around 4 to 4.5 times. As an example, if your net profit figure is £40,000 across the latest two years, you could potentially borrow £160,000 to £180,000.

It works the same way if you’re a limited company director. If your salary and dividends equate to approximately £40,000, you could potentially borrow up to £180,000.

How is a mortgage calculated for a self-employed First Time Buyer in the UK?

For sole traders, a lender would take your income from the net profit figure. If your latest year is higher, they would take an average of the last two years. If the latest figure is lower, they’re likely to just go off that lowest number.

Some lenders would use the latest figure if it’s higher, but it’s normally down to underwriter’s discretion. They would likely want to see a projection for the third year to ensure the second year is supported.

For limited company directors, lenders take your income as salary and dividends. If the latest year’s figure is higher, they’ll go off an average of the last two years. If it’s lower, again, they’re likely to take the lowest figure. Some lenders could use the latest figure if it’s higher, but again that’s down to underwriting discretion and a projection for the third year.

A couple of lenders might use your net profit after corporation tax. This can potentially be more favourable, and allow you to borrow more. Speaking to your mortgage broker if you are a limited company director – we can look at these options for you.

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What documents do I need to apply for a self-employed First Time Buyer mortgage?

Apart from the standard documents such as proof of ID, bank statements and proof of deposit, you are likely going to need the last two years tax calculations and overviews, your last two years accounts and your last three months business bank statements.

Ultimately, each lender may ask you for different documents. Those listed above will give your broker a good indication of what you’re earning, but the lender may request certain other things depending on the case and what the underwriter requires.

What if I have bad credit as someone who is self-employed and looking at my first mortgage?

If you’re self-employed and you’ve got bad credit, you still have a good chance of getting a mortgage. If you think you have something affecting your score, it would be good to disclose that when you see a mortgage broker.

I would also suggest you get your file from a credit agency prior to seeing your mortgage broker. We can then speak to the specialist lenders to see if they’re able to help you.

If you’re not able to borrow at this point, your mortgage broker can advise you on how to improve your credit score, to put you in a better position for obtaining a mortgage in the future.

How does a mortgage lender calculate my income as a self-employed First Time Buyer?

For sole traders, they would go off a net profit figure. For limited company directors they would use your salary and dividends – and a couple of lenders could consider salary and net profit after corporation tax.

A point worth noting for limited company directors, is that if you have a share smaller than 20%, you may be classed as employed rather than self-employed for lending purposes.

How can I improve my chances of getting a mortgage as someone who is self-employed and a First Time Buyer?

Make sure your credit file is kept clean and you’re listed on the voters roll. Gather together all the documentation that we talked about earlier on in the podcast, and that will give you a really good chance of obtaining a mortgage.

How do I apply for a mortgage as a self-employed First Time Buyer? How can a mortgage broker help here?

You basically apply the same way as if you were employed. I would recommend you see a broker first. We can give you an indication of your maximum borrowings based on your income and your circumstances.

That will then guide you on the properties you’d be able to afford, based on what would be most suitable for you and your circumstances. That’s basically what we’re here to help with.