Advice on self-employed mortgage

TwoYearToMove

My plan is to start looking for a house around the middle of 2021. By that point I should have around 27k saved for a deposit. My monthly income by that point should be around £3-3.5k pm, and I will have close to no debt. I would only have 1 years worth of accounts though at the higher salary. I'm late 40s in age and would be a first time buyer. I'm a self employed self-published author.

So my questions are...

1) What (roughly) amount of mortgage would I be able to borrow?
2) What kinds of issues could there be with me getting any kind of mortgage being self-employed?

At this stage I'm just trying to work out what I would need to start looking in the middle of 21. I appreciate I would be paying a higher interest rate and that's fine. I've seen a company called Aldermore advertised and they said 15% deposit required and maybe 1 years worth of books so I've been working on that.

Any advice appreciated!

ACG

General rule of thumb is around 4.5x income.
I think you might be looking at closer to 4x income because of your age, but I might be being a little over cautious there.

The biggest issue will be one years accounts, although from what you are saying you should have 2 years accounts - income earned from April last year until April this year will be 1 lot of accounts and then April this year to next year will be the second lot.

I understand you may only want to use the latest years figures, but that is different to only having one years accounts and by having the 2 years, you will probably have a couple more options.

It has been a while since I used aldermore but their stance used to be 2 years accounts and use the latest figures (but that could well have changed). I think it would be a good idea to speak to a broker as there is a good possibility you can get a normal lender/rates rather than having to resort to Aldermore and similar.

[Deleted User]

Quite a few have moved to latest years accounts now. Santander, Coventry, natwest (at certain ltv) all look at latest year if there is 2 years to start with.

Speak to a broker but it should be a fairly simple case overall

TwoYearToMove

Thanks for the advice above. The reason I'm saying 1 years worth of accounts is because my salary has been much lower than £3-3.5k for the past few years (I started writing in 2016) but has recently increased and I project will be around the 3-3.5k from June onwards of this year. So I could use 1 year of high salary or 2 years including the last year being much lower.

What would be the reason not to go with Aldermore etc? Is it they would charge me a higher interest rate so I would pay more per month?

[Deleted User]

But you will have more than one years of self assessment documents? If so then you need a lender who will work on 'latest year' rather than average of the last 2 years.

From what I gather, an average of the last 2 years would be a worse income than if you used your April 2020-April 2021 income figures (you can generate the documents you need for a mortgage as soon as the tax year ends and you submit your earnings)

There are lenders that lend on 1 year accounts, but they are for people that literally have a single set of self employed documents. That doesn't sound like it would be you.

RE Aldermore, they are a semi specialist lender who charge more for a more manual approach to underwriting. I doubt you would need something like that

TwoYearToMove

Ah ok, I was getting 1 year worth of income mixed up with the latest year. With 1 year being for people that just have that first 1 and only year. Correct, I would have a number of years, but only the 2020-2021 would be the higher salary.

So a lender like Aldermore wouldn't necessarily let me borrow more than the Nationwides, Hallifax's etc, they would just have a higher interest rate?

ACG

Aldermore would probably allow you to lend more as they can lend up to 5.5x income where as bigger lenders tend to have to 4.5x multiple in place, but it does not necessarily mean you can lend more with aldermore but their rates will be higher.

TwoYearToMove

This might be dumb question but is it 4.-4.5 x your salary, before or after tax? So net or gross?

[Deleted User]

TwoYearToMove wrote: »

This might be dumb question but is it 4.-4.5 x your salary, before or after tax? So net or gross?

If you are a self employed sole trader then you are looking at the 'net profit' figure.
If you are a Ltd company then its Gross salary plus dividends (there are other ways of assessing ltd company directors but probably not worth going in to at the moment)

TwoYearToMove

Deleted_User wrote: »

If you are a self employed sole trader then you are looking at the 'net profit' figure.
If you are a Ltd company then its Gross salary plus dividends (there are other ways of assessing ltd company directors but probably not worth going in to at the moment)

So with net profit, you're talking after tax and expenses have come out?

Dazed_and_confused

Tax is a personal expense not a business expense.

Are you really self employed? The regular reference to "salary" suggests you are an employee (of a limited company).