Self-Employed Mortgages
Who is classed as being self-employed?
You can be classed as self-employed in a number of different ways.
If you are a sole trader or in a partnership then you would usually be classed as self-employed (see our page on Locums for exceptions to this).
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If you are a Director of a Limited Company then you may be classed as self-employed depending on your shareholding in the company. As a general rule, if you own more than 20% of the company shares then you will be self-employed (we have lenders who go either side of this percentage if needed.
How long do I need to have been trading for?
If you are a self-employed Locum then you could possibly get mortgage approval after only 3 months of trading.
Otherwise you would be looking for at least 1 full year's income proof with 2 years being preferable if possible. The vast majority of lenders require 2 years' proof of income, so your options of lender will increase if you have been trading for that long.
What about if I bought into an already trading business?
If a business has a strong history and we can show a lender how it has been operating, then quite often we can bypass the requirement to have 1 or 2 years of personal tax returns.
If you are in this position then it is something worth talking through with us to see if we can get you approved sooner than expected.
How will a lender calculate my income when I am self employed?
This is a big question as there are so many lenders and there is so many different ways to calculate income.
Probably the most common method is to look at the figures on your SA302 Tax Calculation document. If you are a Sole Trader then you will want to find the ‘Profit from Self Employment’ and if you are a director of a Ltd Company you will be looking for your Salary and Dividends.
We then have other lenders who will look at the earnings of the company itself rather than what you take from it as your personal income. The lenders in this camp will be looking at your Salary plus your Share of the Company Net Profit. If your company doesn’t pay out all of its earnings as dividends then this can be a hugely beneficial way of calculating income whilst allowing your company to remain tax efficient.
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Depending on the lender, they will either average the last 2 years or take the most recent year in isolation. If your business is growing then it can be very beneficial to find a lender who can take your latest year's figures as your income rather than averaging.
We can help you navigate this minefield and ensure you are placed with the best lender to meet your goals.
What if I don't draw all the money from my limited company?
Some lenders will look at a Limited Company and see that the company is more profitable than the drawings would suggest.
If the money isn’t needed for personal expenses then it's common to just leave the money in the company to be a bit more tax efficient. If this is the case and we need to boost the borrowing, then we can use a lender that will take the net profit figure after corporation tax as your income even if you didn’t actually take the money out.
What documents will I need to apply for a self-employed mortgage?
In order to give you the best advice, we find it useful to have as much information as possible and will then find you the best lender based on the all of the details.
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On top of the standard requirements for proof of identification and proof of address plus 3 months' personal bank statements, we would need to see:
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Tax Calculation (Sa302) and Tax Year Overview from your self assessment portal or from your accountant for the last 2 tax years.
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Full company accounts for the last 2 years if you are a director of a limited company
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The most recent 3 months of business bank account statements as lenders will want to see the business is still currently trading.
How much can I borrow?
Lenders use an affordability model to work out how much you can borrow. They will want to know details of your income and employment as well as the composition of your household and what your credit commitments and general outgoings look like. A lot of lenders will cap the maximum amount you can borrow to 4.49 times your earnings, although you may be able to borrow more if your income is sufficiently high.
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It's really important that you give us accurate figures regarding your income and outgoings so that we can provide you with accurate results.
How big a deposit do I need?
Typically, you will need a 5% minimum. However, the more deposit, the lower the loan to value (LTV) will be. The lower the LTV, the better the interest rates are that are offered generally.
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For example:
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£200,000 house with a £10,000 deposit would be 95% LTV
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£200,000 house with a £40,000 deposit would be 80% LTV
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At 80% LTV you would get a better interest rate than at 95% LTV as you have more equity in the house so from a lender's perspective it is less of a business risk to them.
Mortgage terms & monthly payments - how does this work?
As an adviser, we will advise in your best interests, which means we will always recommend you take out the shortest-term mortgage possible given your current affordability & personal situation. This keeps the amount of mortgage interest you pay over the whole term to a minimum.
Each month over the agreed term, the period over which you agree to repay your mortgage loan, you will pay an amount of the original mortgage loan back plus interest. This is called a capital and interest repayment loan.
You can decide to take out a longer term if you wish. This means, overall, that you will be paying more interest, but by taking out a longer term will reduce the monthly payments to a figure you feel more comfortable with.
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For an idea of what your monthly payments might look like, please feel free to try out our Mortgage Calculator
What steps can I take to improve my chances of getting a mortgage?
The first thing to do is to be aware of your credit rating and what impacts it. We would recommend obtaining a copy of your credit report (handy link below) and making sure that you recognise any credit commitments that have been taken out in your name. Having a copy of your credit report can also help you to make sure that there are no errors on there e.g. credit commitment showing as having missed payments if you have actually made them on time. If anything is wrong on your credit report, then you need to contact the company involved and ask them to correct it. You can also add what's known as 'a notice of correction' if there is something on your report that you disagree with.
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Make sure you are always on time with your credit commitments and bills. Missed or late payments may have a big impact on your ability to secure a mortgage.
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You should make sure that your employer as well as any bank accounts, credit cards, personal loans etc all have your most recent address. If you don't update these institutions with your current address, then your data may not pull through correctly and this can impact your credit score.
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Register for the Electoral Roll (if you haven't already) as this can boost your credit score as it verifies your address as well as your identity.
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If you have any credit cards/store cards, try not to be too near to your credit limit. Being near your credit limit may suggest to a mortgage lender that you struggle to manage your money. If you can, pay off your credit cards in full every month.
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Try not to take out any new credit cards, personal loans, car finance etc in the 3-6 months before you intend to apply for a mortgage. Whenever you apply for credit, it reduces your credit score.
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Don't live in your overdraft. If you spend more than half the month in your overdraft, this may indicate to a lender that you are not good at managing your money, so why should they trust you with theirs?
Do I need a Decision in Principle to make an offer on a property?
Whilst you don't need a Decision in Principle (also known as an Agreement in Principle) to put in an offer on a property, having one in place prior to putting in an offer may be prudent as the estate agents will want to know that your offer is genuine and serious.
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A Decision in Principle is essentially a shortened form of a full mortgage application which, usually, is where a lender carries out some basic checks, including a credit check and, if successful, provides a decision to lend subject to a full application being made, and a valuation of the property you are buying being carried out.
Can I take out a personal loan to use as a house deposit?
In most cases, lenders are not happy to use a personal loan as your house deposit. So if you do use a personal loan for your home deposit, you will be severely limiting your choice of lenders. The details of the loan would also need to be known and the payments would be factored into your affordability and impact the amount you could borrow.
What is a gifted deposit? Can it come from anyone or only from family?
A gifted deposit is where someone makes an unconditional gift of money to you and they will not be taking any financial or legal interest in the property you are purchasing and there will be no repayment of the gift. Lenders will want to know where the money for the gift came from and may ask for bank statements or other evidence.
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Typically, lenders will accept gifts from immediate family which usually means spouse, parent, grandparent, sibling, child or grandchild.
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A small handful of lenders will potentially accept gifts from other people (not those listed above) subject to reasonability.
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For deposits over £10,000, most lenders will require either a letter from the person/people making the gift or for them to fill out their gifted deposit form.
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There are also different rules based on where the person making the gift is from e.g. within the European Economic Area or not.
Why should I use a mortgage broker like Veterinary Finances?
We have over a quarter of a century of experience in giving tailored advice specific to your circumstances. We can search the whole of the market to find the mortgage that best suits your needs.
We have established relationships with lenders and will check your eligibility and affordability against their criteria before placing your application.
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We will look after all of the process from start to finish, submit your documents to the mortgage lender and keep you updated every step of the way.
We are regulated and authorised by the Financial Conduct Authority, so you get the same protection as if you were going direct to your bank or building society but with the added bonus that we search for the best deal across the wider market.
What are the next steps?
Your step-by-step guide to getting a mortgage is below. We look forward to helping you when you're ready.
YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE OR ANY LOAN SECURED AGAINST IT.
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A step-by-step guide to
getting a mortgage
Click on each step for more information
Step 1: Discuss your requirements with us
Step 2: Gather documents and send to us
Step 3: Give consent for Decision in Principle
Step 5: Instruct solicitors for your mortgage
Step 7: Lender assesses your application
Step 9: Lender makes an offer
Step 11: Discuss protection needs
Step 4: Receive mortgage recommendation
Step 6: We submit your application to a lender
Step 8: Lender values the property
Step 10: Solicitor carries out legal work
Step 12: Mortgage completes
Types of Mortgage
Fixed Rate
The interest rate and monthly payment stay the same every month for the duration of your mortgage deal, which is typically fixed for between 2 and 10 years. At the end of your product term, if you do nothing, you will move onto the lender's Standard Variable Rate (SVR). Fixed rates are good if you want stability in payments without any surprises when it comes to budgeting.
Tracker Rate
The interest rate is linked to the Bank of England Base Rate so payments can vary throughout the product term. A tracker rate may be suitable for you if you're happy to take a risk with your monthly payments or need to make large overpayments to your mortgage as some tracker rates will allow for unlimited overpayments without penalty.
Standard Variable Rate (SVR)
This is the lender's variable rate that you would move onto once your fixed rate or tracker rate mortgage comes to an end. Lenders can change the interest rate whenever they like and there are very few occasions when being on the SVR is advisable.
Discounted Variable Rate
This is a variable rate set at a defined level below the lender's Standard Variable Rate for a defined period. So this rate can still go up or down based on movements to the lender's Standard Variable Rate.
Offset Rate
With an offset mortgage, the amount of interest you pay is based on the mortgage balance minus any savings you hold in a linked savings account. So if you took out a £150,000 mortgage but had £50,000 in a linked savings account, you would only pay interest on £100,000.
Payment Types
Capital Repayment
A capital repayment mortgage is one where each month you are paying off some of the amount you borrowed (capital) and some of the interest on the amount you borrowed. At the end of the mortgage term, you will own your property outright. This option is suitable for people who do not like risk and want to know their mortgage is fully paid off at the end of the term.
Interest Only
An interest only mortgage is one where each month you are only paying the interest on the amount you borrowed. At the end of the mortgage term you will still owe the original sum that you borrowed. This is a high risk option and is only suitable for those who have a suitable repayment strategy in place to repay the capital borrowed at the end of the mortgage term. Lenders assess the suitability of the repayment strategy (and we do not advise on their suitability) but these often include: sale of the mortgaged property; sale of a second property; a portfolio of stocks and shares with an equivalent (or higher) value than the sum borrowed; savings equivalent to the amount borrowed.
Part and Part
A part and part mortgage is where some of your mortgage is on a capital repayment basis and some of your mortgage is on an interest only basis. This is still a relatively high risk option and you will need a suitable repayment strategy in place to repay the capital borrowed on the interest only part at the end of the mortgage term.
Fees and Costs
Broker Fee
We don't charge a penny for our advice to anyone who is involved in the veterinary sector (just one of you needs to be if it's a joint application).
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For everyone else, we charge up to £299 on full application to the mortgage lender. This is non-refundable.
Survey Fee
When buying a property, it is advisable to have a survey carried out on it to check on its condition and to pick up on any potential issues. This is separate to the mortgage valuation fee and can be arranged independently by you. The Tier 2 survey is the mid-level report (previously Homebuyer's Report) or you can opt for a Tier 3 survey (previously Full Building Survey).
Mortgage Product Fee
Some mortgage products will have a 'booking fee' or an 'arrangement fee' which is essentially a fee for securing a particular interest rate. This can either be paid upfront or added to the mortgage (subject to affordability). If you add this fee to the mortgage then you will pay interest on the fee for the duration of the mortgage term.
Mortgage Valuation Fee
Some lenders will charge a fee to value the property you are buying or remortgaging. This varies from lender to lender but typically ranges from £0-£500. This is a basic valuation for mortgage purposes and is for the lender's benefit. It isn't a survey that will comment on the condition of the property.
Legal Fees
Whenever you buy or remortgage a property, then solicitors need to get involved. When buying a property, the solicitor will need to carry out searches on the property and make enquiries with the vendor's solicitor, as well as register your property with the Land Registry. With a remortgage, it's a lot more straightforward, so the costs are lower.
Stamp Duty Land Tax
You must pay Stamp Duty Land Tax (SDLT) if you buy a property or land over a certain price in England and Northern Ireland. The tax is different if the property or land is in Scotland (Land and Buildings Transaction Tax) or Wales (Land Transaction Tax). Your solicitor will confirm how much is payable.
Moving Costs
If you're moving home, it stands to reason that you will have furniture and other contents that you want to take with you. Some people may be able to do this themselves (possibly with the help of friends/family). Others will need to hire a professional firm to do this for them.
Buildings Insurance
Buildings insurance is a condition of having a mortgage. The cost of this will depend on the type of property you're buying, where it's located, local crime rates, the type of locks on the windows and doors, amongst other factors. We would recommend having buildings insurance in place from exchange of contracts.
Protection
We would strongly recommend having insurance (protection) in place so that if you are unable to work due to accident, sickness or injury. We would also recommend having insurance in place to clear the mortgage in the event of you contracting a critical illness or passing away. You should consider setting aside a protection budget when buying a property.