Self employed mortgage – what do I need

IainMacca_2

I started my latest business just under 2-years ago, and during that startup period I have not been able to take much of a wage personally.

The business is now reasonably well established (and stable) and I am starting to see the fruits of labour - I have started to take a wage of around £40k to £50k.

I want to try and get a mortgage soon as is feasible, will the fact that the first 2-years have shown a low personal income prevent me from getting a mortgage?

What is the best way for me to frame my business in order to have the best chance of getting a mortgage? I.e. limited company, sole trader, self employed etc. Is a lender more concerned about seeing record of personal income or actual business accounts.

(I’m not making myself very clear – what I mean is: do I need to show 3-years of ‘strong’ accounts/income, or will they consider accounts showing low income year 1 and growing to a respectable amount?)

Any advice very much appreciated.

Cheers

kingstreet

Self-employed and sole trader means the same thing - you are assessable to tax under Schedule D. You'll normally be asked for three years accounts or a similar number of years SA302s which show your net profit figures.

The net profit will need to be showing growth each year from start up. Some lenders take an average of the three years, others may take the third year figures alone (you may be asked for a projection for another year from your accountant).

Limited companies have directors who are also employees and who are taxed under Schedule E. Although you may have payslips and P60s like any other employee, as a significant director you'll probably be asked to provide accounts so the lender can see the profitability of the business and any dividends, on top of your salary payments.

IainMacca_2

kingstreet wrote: »

Self-employed and sole trader means the same thing - you are assessable to tax under Schedule D. You'll normally be asked for three years accounts or a similar number of years SA302s which show your net profit figures.

The net profit will need to be showing growth each year from start up. Some lenders take an average of the three years, others may take the third year figures alone (you may be asked for a projection for another year from your accountant).

Limited companies have directors who are also employees and who are taxed under Schedule E. Although you may have payslips and P60s like any other employee, as a significant director you'll probably be asked to provide accounts so the lender can see the profitability of the business and any dividends, on top of your salary payments.

Thanks very much for that. Yes I had seen both self-employed and sole trader referred to separately so confused me a little.

I can see it will be a balancing act in terms of how much to invest back into the business against showing through it as profit.

Can I just ask one more thing - will it have a bearing on an application having an accountant? (I've just submitted the accounts myself so far).

Thanks again

kingstreet

Some lenders can be a bit petty and ask for accounts or an accountant's certificate. Others are happy to accept the SA302s which are HMRC's calculations of your net profit based on your self assessment submissions.

You'll have fewer lenders to choose from. Whether that warrants paying an accountant only you can decide.

It's always a tough call between having sufficient profit to get you a good enough mortgage and not so much you end up paying too much tax.

IainMacca_2

Thanks again Kingstreet, I guess it'll just have to be belt & braces for the next couple of years and take a little bit of a hit on the tax side.

Cheers