As a self-employed individual, you’d think it would always be in your best financial interests to make less profit so that you pay less tax. But when you need to apply for a mortgage, you’ll want the opposite to be true: larger profits, higher earnings. Whilst we can’t change your accounts to make it look like you’ve made more money, we can help you to get a mortgage decision.
A good accountant, tasked with looking after accounts of a self-employed individual, contractor or small company, will ensure all records are up to date and tax affairs in order. As part of the service, they will also provide advice on tax reliefs and exceptions so their client does not pay more tax than they need to. Which is fantastic… until the time comes for the self-employed individual to apply for a mortgage or to re-mortgage.
Self-cert mortgages no longer exist
“After the ‘credit crunch’ in 2007, mortgage lenders tightened up their criteria for successfully getting a mortgage. Before the financial crisis, self-employed applicants might have opted for Self-Cert mortgage – effectively, stating what they earned without the evidence provided by their accounting records,” explains Gillian Isibor, Partner at RfM Preston.
“That type of mortgage no longer exists. The self-employed generally need at least two years of accounting records to prove their earnings and ability to pay the mortgage.”
In order to work out how much to lend to you, the bank or building society will generally look at your average profit over the last few years. Lenders also prefer the accounts to have been completed by a qualified accountant. Sometimes they even specify that they must be Chartered or Certified. In any case, it’s vital that your records are up to date.
“In some situations, two years’ records may not be available. Or the picture on paper may not be a true reflection of the client’s ability to pay,” says Gillian.
“Similarly, a director of a limited company might have chosen to keep profits in the business rather than take them as a salary or dividends.
“There are so many reasons why a self-employed person might be turned down for a mortgage if they are only assessed on their tax returns. That’s why we are pleased to be able to introduce RfM clients to a provider who can help them get a mortgage decision.”
Lifetime mortgage decisions for the self-employed
RfM’s partner provider, ST&R Limited, can offer RfM clients a one-off Decision in Principal for a fixed fee of £249. Their Lifetime Decision option (£995 fee) enables applicants to get a decision that will apply to any future re-mortgages or purchases. It is relevant to both residential and Buy to Let properties and includes a full mortgage and protection review.
ST&R’s mortgage decision service can also help if the applicants credit story is less than perfect or for ‘difficult’ properties such as non-standard construction.
If you would like to know more about the service, please call ST&R on 01772 280718 or email email@example.com.
Please note: RfM is not authorised under the Financial Services and Markets Act 2000 but, because we are licensed by the Institute of Chartered Accountants in England and Wales, we are able to offer a limited range of investment services to clients if they are incidental and / or complementary to, or arise out of, the other professional services we have been engaged to provide. It is our policy to refer investment business, excluding corporate finance work, to Financial Advisers, authorised and regulated by the Financial Conduct Authority. The Financial Adviser will take full responsibility for compliance with the requirements of the Financial Services and Markets Act 2000.