According to the Office for Nationalist Statistics, self-employed people make up 15.0% of all people in work in the UK, with 4.81million workers choosing to work for themselves. Despite this, arranging mortgages for self-employed borrowers is challenging, and many think it’s simply not possible for them to secure one. Particularly when looking to secure a mortgage using one years’ net profits.
There are several types of self-employment; sole traders, contractors, and owners of limited companies, to name a few. There are also many ways a lender will assess affordability for these clients; using net profits, last three years’ worth of accounts, or the value of a contractor’s contract, for example.
The most common form of self-employment is owners of limited companies, and there are options out there when it comes to securing a mortgage. You just need a broker with access to the entire market who can present your case effectively to a lender.
For example, we work with a lender who has some of the most competitive rates on the market, and will use only the latest years’ net profits in the company’s account. This allows the biggest stretch in terms of affordability.
This lender will offer a 2-year fixed rate of 1.65% on a residential mortgage, on loans of 75% loan to value (LTV). This is a much cheaper option than other lenders on the market who would offer a mortgage using one years’ net profits.
The lender will use the latest years’ net profits, rather than an average to obtain the level of borrowing needed. This is ideal for a director of a limited company, whose business is relatively young and whose profits have increased substantially year on year, and are going to continue an upward trend.
However, the lender in question generally doesn’t like taking the latest years’ net profits if the jump has been big, which is where an effective presentation of your case is imperative.
When it comes to presenting your case in a way a lender will look favourably on it, it’s important to enlist the expertise of a broker. We can explain why the jump in the last year has been so significant and prove your business will continue on its upward trajectory.
If you’re an owner of a limited company and would like to discuss property financing, we would be very happy to guide you through your options.