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Guide to self-employed mortgages

As a specialist mortgage lender, we specialise in offering straightforward products to those we believe are often poorly-served by the wider market; including SMEs and self-employees.
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How to Make Mortgages Work for You When You’re Self-Employed

We offer the same mortgage products to those who work for themselves as we do to employed borrowers, because we don’t believe you should ever be penalised for being self-employed.

And because we have expert underwriters who assess each mortgage application on its own merits, we’re not reliant on an automated program that can only say a yes to borrowers who fit into within tight boxes.

Our lending criteria is tailored to the self-employed, and we’ve put together this handy guide to help you understand how best to secure a self-employed mortgage.

Limited Liability Partnership

A type of business structure where you share all the business’s profits between the partners, and each

This is a type of business structure where you share all the business’s profits between the partners, and each pays tax on their share.

Each year, the partnership must send a Partnership Tax Return to the Inland Revenue. Additionally, each partner must also send an annual Personal Tax return, pay income tax on their share of the partnership’s profits and pay National Insurance.

As partners’ income can be made up of unpredictable drawings rather than an income that is guaranteed, it can be difficult for some lenders to assess what a partner can borrow. Our mortgage advisers are very familiar with lending to partners and will be able to help you understand the options available to you.

Why as a self-employed mortgage applicant, your income will need to be verified

As a self-employed borrower you can apply for a mortgage just the same as anyone else. However, one of the biggest challenges you can face is proving your income is sufficient to pay your monthly mortgage payments. This means that mortgage lenders will always verify your income for a number of important reasons:  

  • Self-employed income can vary, so if you have one bad year it could affect your ability to get the mortgage amount you need, even if it isn’t representative of your earnings.
  • Even if there is a good reason for a low earning year – such as maternity leave – a mainstream lender may not be able to take that into account.
  • If you have a new business you may not have the requisite accounts to provide to a lender – many high-street lenders demand two or three years’ worth.
  • If your business is still growing your income averaged over three years may not be representative of what you can achieve going forward. This is in direct contrast to an employed borrower who has seen their income rise sharply over three years, because a lender will only look at their salary for the latest year.
  • Your accountant may advise you to reduce your income for tax reasons. Whilst this is entirely legal it does mean on paper your income is far less than you actually earn.
  • At Aldermore, if you’re a Director of a Limited Company, we look at different ways of assessing your income – such as your net profit, or Director’s remuneration and dividends both of which could significantly affect how much you can borrow.
  • We also accept your latest years’ accounts providing the business has been running for a minimum of two years.

The information your mortgage lender will need you to provide

Accounts

  • You’ll need to provide audited accounts and depending on the lender, you may need two or three years’ worth of accounts.
  • With Aldermore, if the property is your own home, you’ll only need one year’s accounts as long as the business has been running for a minimum of two years.  
  • If you’re a Limited Company, some lenders will look at your net profits, while others will take into account Director’s remuneration plus dividends. If you are a Partnership a lender may look your share of income, but it varies


Tax

  • SA302/Tax Calculation and Tax Year Overview forms are permitted and are provided by HMRC (on request).
  • When you submit your application to Aldermore, we will require Tax Calculation (SA302) and Tax Year Overview documents covering at least the last two tax years.
  • We accept the tax calculation (SA302) via: : 
    - A printed copy from HMRC Online Account
    - A paper copy issued by HMRC (resulting from submission of paper return)
    - A printed copy from online commercial software
  • We accept the tax overview (one copy for each tax year) via
  • Printed copy from HMRC Online Account
  • Printed copy issued by HMRC (resulting from submission of paper return)
    - Printed copy from online commercial software if available.
  • It’s worth noting that that we are unable to obtain retained profits from an SA302 and would require either the full accounts or an accountant’s certificate.
  • Because you do your tax return in arrears some self-employed borrowers might need to have been working for almost four years to have gained three years’ worth of SA302 forms.

Sources of tax information

HMRC self-assessment online

If you usually send off your tax return through a HMRC self-assessment online account, you can print both of the required documents from their online account too.

Commercial software

If you usually send your tax return using commercial software, you can print the Tax Calculation (SA302) and Tax Year Overview via the same software. If the software does not allow to print the Tax Year Overview, you will have to register with HMRC online and print as an on line self-server.

If you'd like to get the ball rolling or have any questions, give us a call on 0333 3211001.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE

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