Being self-employed can often be perceived as a hurdle to getting a mortgage, but with an experienced Mortgage Broker in Cardiff working with you, you may possibly be able to overcome these hurdles.
The first thing that you need to be aware of is that there are no specific lending criteria for sole traders and Limited Company Directors that everyone follows. Each lender has their own individual policy and the amount they will allow you to borrow can be incredibly varied.
Let’s have a look at sole traders (or partners) first. The amount you are able to borrow for a mortgage will be based on your net profit which can be confirmed by obtaining your SA302’s from your Accountant or direct from the Inland Revenue.
Most lenders average your last 2 or 3 years’ net profit but there are lenders that may still consider using your latest year. Your SA302 cannot normally be any older than 18 months. If your net profit has decreased the lender will usually base everything off the latest year and require an explanation as to why it has dropped.
If you are a Limited Company Director who owns 20% or more of the shares in the business then the lenders will deem you as self-employed and regarding averaging, the same rules will apply. The figure that they tend to average will be your salary (generally this can be equivalent to the tax-free allowance) + declared dividends, which will also again be evidenced by way of SA302’s.
At some points in time, a Limited Company may be performing well in terms of net profit but the Directors are not drawing their dividend – these type of applications can be disadvantaged in terms of maximum borrowing capacity because they aren’t able to declare as much income. This is not the end of the road, however, because there are lenders out there that will consider using your share of the net profit, as opposed to salary + dividends.
The minimum trading period for Self-Employed or Limited Company Directors is one year, although you may find that there are lenders out there who want longer than that. If you have recently formed a Limited Company after a period as a sole trader under the advice of your Accountant, then there are various available lenders who can look at this, providing it is in the same line of work.
As you can see from the above, Self-Employed Mortgages in Cardiff are often quite complex, so if you would like to talk about your situation please feel free to Get in Touch and we’ll talk you through your process. We can also send you a form for your Accountant to complete, which will help us tailor-make a recommendation designed to meet your personal situation.