It’s surprising how often we speak with self-employed people who think that owning a business or working for themselves means they are unable or unlikely to obtain a mortgage. The truth is that lenders are all too aware of the particular situation for self-employed people and have a pretty straightforward process in place to work out how much they would be prepared to lend.
Whether you are a sole-trader, a partner or a company director, there is a process by which you can obtain a mortgage. In the case of sole traders and partners the main criteria considered is the individual’s net profits while for company directors it’s their salary and paid dividends that are looked at. Some lenders are aware that many business owners will not be drawing all of the money they are entitled to from the business and so will also accept the applicant’s share of net profits and salary.
Lenders will vary in the amount of time it is expected an applicant will have to provide evidence of income for. Most will look at the income received over the last two or three tax years and either average it out or take the most recent year as a basis for calculation. However, if you have a good profile, some lenders will make it possible to get a loan with just one year’s set of accounts (completed tax return).
Many self-employed people who work on a freelance basis often have income from various different sources. Freelance musicians, for instance, will be paid on a self-employed basis for much of their work but some of their teaching work will be on a PAYE basis with their income being taxed at source. This latter income will show differently on your SA302 form but with good justification and clear presentation, it will be treated treat no differently and should still contribute to your income for the year.
The main documentation to prove your income is either an accountant’s reference or your SA302 form showing your tax calculations from HMRC. In the case of the accountant’s reference then it must be a qualified accountant and different lenders will require different levels of qualification. Obtaining your SA302 tax calculations from HMRC is by far the most common process and in reality is quite easy. It can be ordered by phone and will usually be faxed to you (or us) on the same day. They can also post them to you although this usually means a wait of about ten days. You can, of course, download the SA302 from your online tax portal but this format tends not to be accepted by most lenders.