self employed/want a mortgage

dragongirl101

Hello
I would really like some advice or opinion regarding getting a mortage.
My husband is self employed. We have a business that has been going for 1 year now - my husband was self employed in the same line of business before we opened our own shop also (he worked as self employed from other peoples' premises)

We have always rented but now want to buy a house but realise this is not going to be easy and we need to get a plan together to figure out how best to do this.

What I would like to know is when you apply for a mortgage as a self employed business owner/sole trader - what figure do they take as your "income"
Is it the business's net profit or gross profit or what. How many years accounts do they want to see (at the moment we do not use an accountant as I do all the bookeeping and tax returns but we will have to get an accountant to certify the accounts to get a mortagage I presume)

We were told by someone we know that a way around it may be to put the business in my name and I then employ my husband and pay him a salary so that he is technically employed and that would mean being able to get a mortgage more quickly and easily but I am not sure about this.

At the moment we have a seperate account for the business income and expenditure although this is not an actual business account it is a personal account in my husband's name which we use only for the business income and expenditure. We then transfer a certain amount each week into our joint personal account for our personal expenses.

What about a deposit? How much of a deposit would we be likely to have to put down if any? Also would the rule of "3 x salary " apply?

Any advice appreciated.

clutton_2

25-30% deposit is what is required these days - being so newly self emplyed, i think you need a good broker... i can recommend one if you send me a private message

BitterAndTwisted

It sounds to me that your bookkeeping and records are well-kept and it's my understanding that you will most probably need three year's-worth of certified accounts.

At the moment lenders are looking at a maximum of about 80% of the purchase price so you will need a minimum of a 20% deposit plus savings for estate agents commission and moving expenses etcetera. Don't forget stamp duty as well. It's my belief that lenders are looking at 3 times annual income but it's possible that some are more flexible so you should shop around as much as possible.

As an experiment it might be prudent to put away the equivalent of the difference between your projected mortgage payments and your current rent for at least six months to see how you would be able to afford it. This should add to your savings fund quite nicely as well. It all hangs on how well the business is doing and what your profit-projections are so you might be expected to show a business-plan to your lender as well.

poppysarah

Have you got a good deposit and savings to cover any lean times?

You could both set up a company and both be employed and take dividends out as directors. Speak to an accountant about tax-efficiency.

James_Trimby

Hi as an accountant I have been asked to certify acccounts produced by an unqualified accountant so, as "self certified" mortgages are almost non existant now, you may need to find and accountant (with some sort of recognised qualification). I only had to confirm what had been declared to Revenue not redo accounts so might not be too expensive.
A company will not get you out of showing accounts as it is your own company most lenders will still (quite correctly) treat you as self employed. It may well be cheaper for tax etc but that is a whole different question!
What you really need, as suggested in first response is a good mortgage broker who will know how each lender will react (not just what it says on the paperwork).
They will all look at your income after business expenses but before tax (just for salaried people) and will NOT make allowance for the lower taxes you can pay as self employed (lower NIC and more expenses deducted) and will consider you higher risk as no guarenteed long term income.
YOu may find some of the smaller local lenders are still old fashioned enough to look at affordability etc rather than a computer checklist, but again a good broker should be able to help with this. Good luck

Arthritic_Toe

James_Trimby wrote: »

... You may find some of the smaller local lenders are still old fashioned enough to look at affordability etc rather than a computer checklist, but again a good broker should be able to help with this. Good luck

I love that euphemism (i.e. "basing a mortgage on affordibility rather than traditional income multiples"). That was the standard spiel of Northern Rock and their ilk as they lent vast and irresponsible amounts of money to anyone and anything. In reality it meant - the more we lend, the bigger my bonus.

Sorry - to the point... The amount of detail they dig into seems to depend on the size of your deposit in relation to the amount you need to borrow. If you can put up 40%, they hardly bother to check anything - as they will be well covered if you were to default. The closer you get to their upper LTV limit, the more they will insist on seeing every detail. This seems to be a more important factor than the income multiples.

By the way, it may be worth looking at offset mortgages - these are often a good option for the self employed with variable income as you get a bit more flexibility.

property.advert

The issue simply rests on the fact that using a company means arranging your finances in such a way as to mitigate taxes and apply all practical expenses against your gross position. Computers cannot understand small company accounts.

I have known people have a salary paid for a specific period of time prior to making a mortgage application purely to bypass the far more stringent rules for what is effectively a self employed application.

No laws need to be broken, though some would not agree with using this option. I don't have any problems with it.

James_Trimby

Re Mr Toe ! I did not mean to suggest unreasonable lending but often self employed/directors of own company etc do not fit the standard rules that the computer checklists put you through nowadays, the cases I came across involved a manager meeting client and reviewing business and understanding how a small businesss worked (irregular payouts/uneven dividends etc etc)

Re companies I have had cases where large salaries have been paid for mortgages BUT also had cases where accounts / history etc where also required so sometimes it worked and somethimes it would not ! Again leads on to getting a good broker who knows how the differing lneders react