If you are running your own business, you’ll be no stranger to life admin, but securing a mortgage as a self-employed person can be an overwhelming and complex task. A large part of proving your eligibility for a mortgage comes down to proving your income. A lender wants to see an accurate picture of how much you are reliably earning and how long you have been earning at that level. This enables them to establish how much you can afford to borrow.

Here, our partners in mortgage advice, Hudson Rose share in their quick guide some of the main issues they come across when helping their self-employed clients to sort their first, or next, mortgage deal.

How long do I need to be self-employed for in order to get a mortgage?

This is one of the most common questions that our self-employed clients ask. And it’s a good question, because the amount of time you’ve been self-employed does matter to a lender. They are looking to make a judgement on how much you are likely to be earning across the lifetime of your mortgage deal, so the easiest way for them to judge this is by looking back at your earnings to date.

The majority of UK mortgage lenders will want to see a minimum of two years’ worth of income from your self-employed business. Some will want three years. However, there are some that will consider less than this if they can see other evidence that the future earnings are secure. If you’ve been trading for less than two years, we would highly recommend that you give us a call so that we can point you towards a lender who is likely to look favourably on your situation.

How can I prove my income if I am a Sole Trader or Partner?

If you are a sole trader or you are trading in a partnership, a lender will want to look at your net profit figure for the most recent two years that you’ve been trading. (In the case of a partnership, this relates only to your personal share of the net profit, not the business as a whole).

Remember, your net profit will be the figure that you or your accountant have posted, allowing for expenses, and on which you pay income tax.

Lenders will be looking for your most recent figures – ideally, the current year or the year before, and the year before that. Most lenders will then take an average across the two (or three) years and use that as your income.

The documents you will need to prove your sole trader/partner income will include at least one of the following:

• SA302’s or Tax Calculations
• Tax Year Overviews
• Company Accounts

How will a lender judge my income if I am in a Limited Liability Partnership?

Being in a Limited Liability Partnership could make it difficult to use company accounts to prove your income. It may not be appropriate to divulge other individuals’ income, and underwriters may not wish to trawl through large company accounts to extract the information that relates solely to you.

In such cases, usually for those in legal or accounting professions or doctors in general practice, lenders will usually accept a letter from the managing partner or the company accountant detailing your share of the partnership profits.

For this type of specialist mortgage advice, we would urge you to call us as early as possible in your mortgage journey so that we can make sure you have the correct documentation.

How does a mortgage application work for a Limited Company Director?

Limited Company Directors are often considered to be employees of their limited companies, however mortgage lenders don’t always see it this way.

If your controlling share of the business is less than 10%-20% (this figure varies from lender to lender) then the lender may consider you to be employed. If your share is above the threshold, the lender will treat you as self-employed. In this case the lender will want to see the full company accounts in order that they can fully assess the sustainability of your personal income.

And by income, in the case of a limited company director, the underwriters will be looking at either salary and dividends that you have taken or the share of net profit. They will use the company accounts to assess these figures and will most likely need to see the most recent two years of accounts.

Again, in cases such as this, we recommend that you seek expert advice to ensure that you are placed with the most appropriate lender for your individual circumstances.

Will a mortgage lender consider my income if I am a Contractor?

‘Contractors’ come in many different shapes and sizes so we always recommend that you seek professional mortgage advice if you are working in this way. Different lenders will require different methods to prove your income so it will be vital that you find one who will consider your circumstances in their most favourable light.

The team at Hudson Rose understand how complicated it can be to get your head around a mortgage application when you are self-employed. That’s why we’ve created a free guide packed full of easy-to-navigate information to help. It’s specifically tailored to walk you through the various types of self-employed and how each one will be considered by lenders. Click here to download the guide or give us a call to chat through your circumstances and let us take away the stress of applying for a mortgage.

Hudson Rose | 0330 122 9920 | www.hudson-rose.co.uk | hello@hudson-rose.co.uk

Hudson Rose is a 21^st Century boutique mortgage and insurance brokerage that combines technology with real people to provide the ultimate customer experience.