I work with a large number of self employed clients. I often hear from new clients that they believe it will be very hard for them as a self employed person to get a mortgage. This is simply not true. Self employed mortgage should be no more difficult than for an employed person if you have the required documents in place.
Most lenders make their decisions based on the amount of money you have personally earned. As a sole trader this is your net profit after expenses. As a limited company director this is your salary plus dividends.
I have a client that I’m working with at the moment who is a limited company director. His personal salary plus dividends for year ending April 2018 was £46,000 (rounded). Based on that figure with a mainstream or high street lender we were looking at a maximum mortgage of around £218,000. This was not enough. The client needed more.
So what did we do?
There are some lenders that will assess your case based on your company’s profit after tax and expenses. For sole traders this doesn’t make any difference but for limited company directors it can be a huge difference.
The aforementioned client has a very successful business that profits a considerably larger sum than he personally earns. He pays himself a lower amount for tax efficiency purpose and the fact he doesn’t actually need anymore personally right now. The net profit after corporation tax and expenses are deducted was £104,000 (rounded). The company is in great shape and growing a tidy pot of retained profit in the business account.
A number of lenders will work based on your share of that net profit figure plus your salary. He is the sole director of the business which means he can use 100% of that figure for affordability.
"I can use my company's profit figure?"
Yep, that’s right. All of a sudden he was able to get a mortgage up to £506,250.
"These self employed mortgages aren't so bad after all!"
Often the difference between getting exactly what you need or appearing to be miles away is simply knowing how to do it.
Limited company directors – if you’re paying yourself a lower amount than your business is making after tax and expenses (building up retained profit) and you’ve been struggling to get the mortgage you need based on your personal income, lets have a chat and see if we can get you where you need to be. You may be able to comfortably afford the mortgage you need.