How to increase chance to get a mortgage? (self-employed)

-chris-_3-2

I'm self-employed and am currently putting together plans to start saving for a mortgage (first-time buyer), I'm not going to be in a position to get one for a couple of years but want to make myself as attractive as possible to lenders when I am.

One thing I've heard that improves your chances is if you have been self-employed for a number of years. Which should be no problem as I have been already for 2.5 years.

Does any one know similar tips like this so I can give myself the best chance possible when I am in a position to get a mortgage?

Any advice much appreciated.

Cazza

If you're self employed as a sole trader, the figure a mortgage leder will use to calculate how much you can borrow will be your net profit, keep an eye on this as many self employed people find that their net profit figure is relatively low and this means they struggle to borrow the amount they need. If you're trading as a Ltd company they will take your salary plus dividends. Most lenders will want to see you last three years figures (either accounts or tax returns).

Do you rent at the moment? Do you have any money outstanding on loans or credit cards?

-chris-_3-2

No I don't rent as I want to maximise the amount I can save for a deposit. I currently have no money outstanding on any kind of loans, I do have a credit card but I have always paid that off in full every month.

I did wonder whether they would look more favourably if I went from a sole trader to create a ltd company, even if my income worked out exactly the same.

happybroker

whilst you are technically employed by a limited company the bank will treat you as being self employed if you own over a certain percentage of the shares, usually 50%.

the bank will want to see accounts either way. My advice would be to let your accountant know that you are looking to put yourself in as good a position as possible to get a mortgage over the next couple of years. Much of the stuff an accountant will write down in your accounts such as depreciation, milage expenses if it's a limited company, vehicle maintenance etc have a dramatic effect on your net profit (and subsequent tax bill of course) but don't help when you look to borrow money.

Tuscan

beware though, upping your income on your accounts will mean a bigger tax bill

-chris-_3-2

Thanks for the replies, I've made a note of the points, I am finding it somewhat of a headache situation compared to if I had a 'normal job' (as people like to say!).

Conrad

Chris there is no headache and no issue with being self employed.

Issues only arise where a self employed person has thier accountant reduce thier profit in order to reduce the tax bill, but one cant have it both ways.

You either want a low tax bill which means borrowing less on a mortgage, or you are prepared to declare the highest possible net profit, pay the highest possible tax and thereby get a larger mortgage.

Lenders need at least 2 years net profit but it does'nt go down well when the most recent year is a lot higher than the previous year. In other words you cant simply declare high profits just for 1 year.

Some lenders can consider a projection, but as ever common sense will prevail. You cant give 3 years accounts showing say £20k net profit, and then a projection stating £40k, as the lender will suspect the projection is high merely so you get a bigger mortgage.

So bottom line is, pay lots of tax (as your employed freinds do btw)

-chris-_3-2

Thanks Conrad, I am definitely clearer now on the situation, so I know the way forward, which is always a good thing

MrCarrot

As others have mentioned it's a double edged sword I am afraid. If you have a good accountant he might be able to save you a fortune in tax, but it'll make your profit margin look smaller, hence you're not as attractive to lend to.

Personally I would put a low tax bill before my lending status, but I guess it depends on your circumstances.