Stepping onto the property ladder

Spring is traditionally the most popular time of the year to go house hunting. The weather is warming up, gardens look more attractive with their spring colours and there are likely to be more properties to look at, leading to more choice.

If you’re self-employed and considering making that first step on the property ladder, the chances are you will be considered for a mortgage. However, if you’ve discussed your plans with your parents or older friends – they might have sown some doubts in your mind as, not so long ago, trying to secure a mortgage while self-employed could be tricky.

Back then, being self-employed wasn’t considered that secure and banks and building societies might have been more cautious about lending – as there wasn’t an employer to vouch for your salary. Nowadays, there are more self-employed people and it isn’t a barrier to getting a mortgage. In fact, you’ll probably see the same deals as your employed friends. You do have to be organised though and you might have to be patient.

Before viewing your dream home, you will need to get your accounts in order. In many ways, you will feel like you’re looking at your books in a very different way than previously. Until now, you will have wanted to reduce the amount that you are paying tax on – but now you want your lender to think you earn more to secure a bigger loan. It can all feel a bit daunting.

While it is easier for self-employed people to get a mortgage, it can still be challenging, as you will typically need to show your lender at least two years’ worth of accounts, as well as typically six months of bank statements too. That said, there are lenders out there who will consider one full year of accounts but you might find that you’re not given such an attractive deal.

You might find that your lender will ask some questions about the clients or contracts you’ve got currently and whether they are likely to continue or you know you have work in the pipeline. Sometimes they might also require a reference from an accountant – which is a good reason to use an accountant to prepare your accounts. If you are a company director, you will need to provide evidence of your salary or dividend payments. In addition, if you are an LLP partner, you might be asked to provide a letter from financial directors of the company.

Some lenders will also ask for a SA302 form – which is a brief summary of income that has been reported to the HMRC. This can sometimes take a little time to arrive, so it’s worth getting the ball rolling on that fairly quickly. As with securing any mortgage nowadays, you will typically also be asked about your spending.

Here at Lewis & Co, we also have landlords as clients. In this case, lenders are likely to be less strict when it comes to buyers who are investing in buy-to-let properties. In fact, they will probably look at the rental potential of that property – as the person applying isn’t, in theory, looking to pay back the mortgage from their own pocket.

If you are self-employed and considering a mortgage, we’d encourage you to talk to us first. We can help you to get your accounts in order, as well as introducing you to mortgage advisers and financial advisers locally who can point you in the right direction when it comes to getting funding.

There are other things you can do too, to help yourself along on this journey:

• Be patient. Don’t fall in love with a property before you’ve got everything in order.
• Be organised. Get your finances in good shape and have everything ready to show any potential lender. This includes getting your tax return submitted in good time – so that lenders have the most up-to-date figures from you.
• Check your credit rating and sort out any errors.
• Start saving and budgeting. As with any mortgage, the bigger the deposit you can put down, the more options you’ll have. Also, look at what you are spending each month and see where you can save some money. We know that’s particularly tricky at the moment, when the cost of living keeps going up.
• Get an accountant. Some lenders will only look at mortgage applications that have been signed off by an accountant.

Finally, as we said at the beginning, securing a mortgage will make you look at your accounts in a different way. The amount you spend as a business over the year – your expenses – will reduce your profit. This impacts the amount of tax you pay but it could also affect the amount you can borrow. If you are looking to make any significant purchases for your business, it could be worth postponing those decisions until your mortgage application has been approved.

If you’re self-employed and thinking about getting a mortgage, please do call us for a chat about how to get your accounts in order. Tel: 01892 513515 or email: