Mortgage for self-employed

Hlkns

Hi guys. Could you please share your knowledge about self-employed mortgages. I have some doubts.

Long story short:
We're planning to buy our first home. Right now we thinking about house up to 400k in Reading/Basingstoke.

1st question: I am self employed, last tax year I have earned 53k net profit and this year it was 67k net profit. I am assuming bank will count it as 53+67/2=60k £ income. Am I right?

2nd question: As far as I know bank wants to see last 3 months bank statements. Does income on these statements matter? Or income is important only on SA302.

csgohan4

1: usually averaged, some take 3 years however
2: bank statements to see outgoing as well as income

generally you can only borrow x4.5 of gross income, do you have a sizable deposit?

Broker all day for this scenario. My lender required 3 years accounts and SA302's as well as well as bank statements. If you have had to use SEISS, you may struggle but not impossible

[Deleted User]

if you took any seiss grants then a lot of lenders will strip those out of your net profit and then use either the average of the 2 years or the latest one if it is lower.  

Most lenders want to see 3 months statements to confirm the business is trading at a steady level and the income on the bank statements roughly multiplies up to an annual income. If you have a business where you only get paid a few times a year so the income doesnt show on statements then its harder but not impossible.   If you get paid regularly but the statements show very little in comparison to the declared income then expect a lot of questions. 

propertyhunter

Agree with other respondents that you need to speak to a broker, but different lenders have different rules. I have the option of using dividend income to calculate borrowing averaged over 2 years or I can use net profit averaged over 2 years. You can borrow up to 4.5x those amounts - some allow even 5.5x or 6x, but this is a lot of debt and only accessible if your credit rating is untarnished - I wouldn't recommend such a high level of debt.

I've had to use both SA302s and 3 most recent business account statements in the past, and will have to do so when I apply for my next mortgage (I spoke to a broker last month). An accountant's sign-off has been needed for the net profit amounts. Once a lender asked me for the last 3 months of invoices too - I'm not sure why to be honest. 

In terms of regularity of income, does anyone know how banks perceive 2 weeks' holiday if this occurs in the 3 months prior to applying for a mortgage? That month would have 50% lower invoiced income - and I'm not sure how the bank would react to this. I'm wondering if I need to work non-stop from now until I find a house and apply for a mortgage. That could be a long time. 

Hlkns

I won't apply just on my own. I'll apply together with my missus. She's full time employee with salary of 21750£.
Also we have saved 60k for deposit.
So basically we need 340k loan from bank.
In my mind everything adds up: 21750£+60000£=81750£ x 4.49 = 367k £

But I understand that when we gonna start hunting house I'll have to take days off more frequently and so on. So my income on last 3 statements maybe impacted.

propertyhunter

I found that the market is so hot right now that all estate agents are putting viewings on a Saturday to get everyone through the door on the same day to create a frenzy, so hopefully your working hours won't be impacted too much. 

nuhomebuyer

I can tell you a bit about my application with HSBC as a company director. They wanted the last 3 months company statements and my statements. I had to get a statement from the company to cover right up to the day of the application. Any and all grants were taken off the net profit figure. Furlough to employees, rates relief grants absolutely everything. They also wanted last 2 SAO2 and tax overviews.