Ask Emilia

Emilia is the Sales Director at Metro Finance, the largest shared ownership , the largest shared ownership mortgage provider. Metro Finance helps around 2,4 00 shared ownership mortgage provider. Metro Finance helps around 2,4 00 shared ownership buyers each month, working with more than 90 housing associations to make the process for the buyer as simple as possible, and helping to innovate the shared ownership product. Emilia has worked with Metro Finance for over 10 years, specialising in shared ownership

I’m self-employed – is it harder to get a mortgage?

If you put a self-employed plumber side by side with an employed plumber, both doing their trade for five years and both with provable income, it should make no difference in respect of mortgages.

So, the short answer in that scenario is “No, it isn’t harder to get a mortgage.”

However, the complexities of the selfemployed structure can sometimes create challenges, albeit most can be overcome. So... let’s start with the bare minimum requirements. Whether you are a limited company, sole trader or in a partnership, there must be one full year’s accounts available (most lenders require more, but some will use just one).

The income from those accounts must be enough to support the mortgage.

For the employed person we’d use gross annual salary to work this out, for the selfemployed it would be: • Sole trader – net profit figure • Partnership – net profit figure, split as per the partnership split • Limited company – director’s salary and dividend taken.

These figures, would be proven by way of HMRC tax calculations and overviews. Or sometimes a reference by a suitably qualified accountant.

The difference between a self-employed person and an employed one is that even if a self-employed person has started paying themselves a higher salary, this would need to be evidenced via the tax overviews/ calculations or the accounts. Until this can be evidenced via one of these, the higher income cannot be used.

I’m an employee of my company, paid via PAYE, so I shouldn’t be treated

as self-employed. This is a common misconception. Even if you are employed via your company, if you own shares in the company then lenders may treat you as self-employed. Normally if you own 25% or more you will be treated as self-employed, however this is dependent on individual lenders’ criteria so it’s important to always disclose your shareholding.

I earn more than the business accounts

actually show. This is quite a common scenario whereby the self-employed person feels their income and their take home pay is higher than the net profit figure. It could well be; however, the business accounts are very tax efficient. This doesn’t aid the mortgage application, however. Mortgage lenders look at the bottom line, ie total sales for business, minus the costs, equals profit.

My profits have gone up and down over

the past few years. This is especially relevant considering the pandemic. Generally speaking, mortgage lenders would take an average of the past three years’ figures, which doesn’t help if there are large fluctuations. However, several lenders appreciate the negative impact of covid on some businesses which were unable to operate, and as a result will consider on a case-by-case basis.

They would review previous years, along with business bank statements showing current levels of income. A case would need to be put together for the underwriter evidencing sustainability, so best to provide all the relevant information to your mortgage broker.

If I’m self-employed, what should I prepare for my income?

• Tax overviews and calculations or business accounts. If available, have the last three years prepared • Last three months of your business bank statements • If your business has had fluctuating income, an explanation for why this has happened and how this looks going forward • If your business has seen an increase in income, an explanation for why this has happened and how it will be sustainable going forward.

In short, mortgages for the self-employed should be no harder than a comparable employed person, provided the complexities of self-employment are properly handled and the correct mortgage lender is targeted. Make sure you give your mortgage adviser all the necessary information so they can properly assess, and place you with a suitable lender.