MSE Guide: Self-employed mortgages

MSE_Kit

Hello everyone,

We've created a new guide specifically around Getting a mortgage if you're self-employed. 

If you have any feedback, questions or suggestions, please do get in touch in the comments section below.

Thanks,

Kit

simon_or

Great stuff!

My 2c as someone with complex income and (in the past) credit issues -

Find a broker you trust, speak to them sooner rather than later and hold on to them, good mortgage brokers are worth their weight in gold and will save you loads of money in the long run.

Tax efficiency as a limited company director or as a contractor can sometimes work against being able to borrow what you need, so start doing the groundwork sooner rather than later.

And finally, remember than lenders want to lend, and there are 90+ different ones out there. I've been surprised time and again by the options I have and more often than not there's a solution to achieve what you're looking to do from a mortgage point of view. Don't make the mistake I did by postponing my plans for a few years based on a lot of heresay when I didn't need to!

MSE_Kit

Hi Simon,

Where you cite tax efficiency, are you referring to the process of putting things through expenses and the potential impact this could have on your perceived income?

Kit

simon_or

Hi Kit,

Yes, what you said.

Two aspects to it in my case, one that you mentioned and secondly retaining profits within the company (to take out at a time more suited to a lower personal tax bill) which reduces your options as most high street banks will take the salary plus dividends figure rather than salary plus profits.

Expenses - In my case specifically, I was referring to issues caused by making large employer pension contributions through my limited company and as a contractor large salary sacrifice pension deductions.

In the case of my limited company, it massively reduced my corporation tax bill (great!) but also meant much lower net profits which throws off most high street banks when it comes to mortgage time.

Similarly as a contractor, large salary sacrifice pension contributions are great because you save on tax, employees NI and employers NI (taken from your day rate) but again can cause issues with the mortgage.

Again, I can't stress enough how much value a solid broker can add for complex cases like mine.

sherbert1964

Hi @simon_or, Interesting read.

What's the tax benefit to retaining profit in the business rather than drawing? Simply not having to pay 8.75% Div tax or is there other benefits?

simon_or

For someone in my position with lumpy income, the ability to retain profits within the company allows me to take out cash tax-efficiently and minimise my tax bill.

For example I expect to do less and less through my company over the coming years so this way I can make full use of all the different avenues to take out money from the company gradually over time while minimising my tax bill.