What are the self-employed mortgage rules?
- Getting a mortgage when self employed in the UK is increasingly easy. As more and more people set up on their own, or work in more flexible ways, being self-employed is no longer a niche status.
- You will, however, need to meet self-employed mortgage requirements and demonstrate how you pass the lender’s affordability criteria with evidence of your income.
- The good news is that lenders are very in tune with this now. Below are the main ways you may be set up and broadly how lenders look at your income when considering self employed mortgages UK.
With a self-employed mortgage how much can I borrow?
- The short answer is, about four and a half times your income.
- But some lenders may offer as much as five and a half times your income.
Your Borrowing = 4.5 to 5.5 x your income
What do self employed mortgage lenders consider as income?
- Lenders will consider either your salary, dividends, profit, or profit on ordinary activities before tax.
- Some, or all, of these are assessed then the multiple applied.
- If you’re a Company Director dividend’s may be effectively grossed up to give you greater borrowing potential.
Limited Company Director
- Lenders typically take, one, some or all of the following: Salary, Dividends, Net Profit.
- Income is often worked out as an average over a 2 to 3-year period. But some lenders will take the most recent year if on an upward trend.
- Minimum time trading to get a mortgage is 12 months (or one set of accounts).
- The two most common ways to evidence your income will be:
- Letter from the FD/Managing Partner to clarify drawings.
- A copy of your tax return (specifically, the SA302 document).
Much as for Limited companies, your net profit will be averaged over the last few years to determine your income and as above, if on an upward curve, the most recent year can be used.
How much do self employed mortgages in the UK cost?
- The structure of your mortgage (repayment, interest-only, or a combination) has a big impact on how much your monthly repayments will be.
- The other aspect to consider is the type of mortgage product, either a fixed or variable rate, which will help determine the level your monthly payments.
Need advice from your self-employed-mortgage advisor?
Speak to your self-employed-mortgage advisor today to find out how much you can borrow and how much it will cost.
Self employed mortgages in the UK simple illustrations
- One of the main self-employed mortgage requirements will be an answer to the question: is your income sustainable?
- If your income was £100,000 last year, but you expect business to be half next year, expect self employed mortgage lenders to only include half your income.
- Underwriters are looking at business bank statements now to try to gauge what level of turnover is current.
- For a simple rule of thumb, whatever you pay each month in any debts/outgoings that will continue past when the mortgage comes into effect, that is annualised and taken off your income.
Using the example:
Outgoings of £21,000 per annum (£1,500, nursery fees, plus a car loan of £250 per month)
Means your income will be assessed as £79,000.
Therefore, a mortgage of £355,500 – £434,500 will be offered depending on the lender and amount of deposit you have.
Essential to talk to a self-employed-mortgage specialist
- Depending on your mortgage goals, it really is essential to talk to a self-employed-mortgage advisor that has access to the whole market.
- Your bank of many years that you know and love, through changes in ‘mortgage affordability’, may not offer you the best terms or loan amount.
- It makes sense to look over the fence to what else is available and a self-employed-mortgage specialist is your best and easiest way of doing that.
- We have access to lenders, products, and underwriters that the general public simply do not.
Your self employed mortgages structure
One of the first things to consider is your repayment vehicle.
Do you want to opt for?
- a repayment loan?
- an interest only loan?
- part & part which is a combination of the two?
What is a Repayment mortgage?
- You make monthly payments and at the end of the term the loan is repaid.
- With a repayment mortgage the monthly payments are higher but with less risk.
What is an Interest Only mortgage?
You simply pay the interest on the mortgage loan and look to pay off the loan later with say, the sale of property, investments, or bonuses.
With an interest-only mortgage the monthly repayments are lower but is assessed as higher risk
Your mortgage product
You will also need to consider which type of mortgage product is best for you as this determines your monthly payments.
- Fixed Rate Mortgage. Your repayments are set for 2,5, 10 years.
- Variable mortgage. This is sometimes cheaper, but the rate can go up or down depending on the market and is often penalty free if you want to remortgage.
Rather than asking how much it will cost, consider how much can you afford.
Your self employed mortgage specialist will then structure your mortgage appropriately, based on your risk profile.
What self employed mortgage rates can I get?
- The actual self employed mortgage rates you will be offered will be dependent on your personal circumstance and deposit level. Your broker will advise you on mortgage deals for you.
- Therefore, think about how much you want to spend each month on your mortgage repayments.
- Only brokers have access to a range of lenders in the market, and we have access to exclusive self employed mortgage rates.
How much deposit do I for a self employed mortgage?
- The long answer is that it is dependent on your circumstances: purchase price, income, and property type.
- The short answer is – about 5%-10%.
- Lenders purely take a risk-based approach to pricing, meaning from a starting point of a 5% deposit, every additional 5% deposit you put down increases the range of lenders you can choose from and therefore decrease the cost of the loan as you are determined as lower risk.
- Lenders consider you a low-risk buyer when you put down a 25% deposit or more.
- The last key figure is a 40% deposit. Once you have a 40% + deposit you get the very cheapest pricing available and very often the exceptionally low rates you see on best buy tables.
We are here to help you with self employed mortgage deals.
As a top-rated mortgage broker, we are here to guide you on every step of your journey.
- Your dedicated mortgage broker will provide you with detailed, personalised advice on how much you can borrow and source exclusive mortgage deals.
- In today’s mortgage market, each borrower is assessed on their individual affordability merits. Once we have talked through your personal circumstances, we will advise you on mortgage interest rates for you.
- This means you get the right advice crucial to ensuring you get the right self employed mortgage for your circumstances.
Self employed Mortgage Advice
- Rose Capital Partners takes the time to understand your mortgage goals to secure the optimal mortgage deals for you.
- Our mortgage advice is second to none. We will advise you on mortgage interest rates appropriate for you.
- Our aim is to maximise your borrowing potential, minimise your monthly payments and work with you throughout the lifecycle of the loan to manage down the mortgage.
- You are treated as a valued client, not a transaction, and dealt with by an experienced, empathetic person, not an algorithm.
- We have access to competitive deals and with no affiliation to third parties.
- We will always act in the best interests of you, our clients, to give you the best mortgage advice possible to achieve the right mortgage for your life’s goals.
Your property may be repossessed if you do not keep up repayments on your mortgage.