Self-Employed New Build Mortgage
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Self-Employed New Build Mortgage
Can I get a mortgage on a new build property if I’m self-employed?
Yes. The fact that it’s a new build property and you’re self-employed shouldn’t really pose any major obstacles.
The usual rules will apply around the type of documentation required as a self-employed person. Subject to having the necessary level of provable income, a deposit and a reasonable credit score, there would be no concerns.
Is it hard to get a mortgage on a new build if you are self-employed?
Not if you put yourself in front of an advisor that understands how self employed income works. Very simplistically, somebody that’s employed and has three months’ pay slips might appear more straightforward.
But if you’re well organised, you’ve got a good accountant and you’ve done all your tax returns, you can provide all that information to a qualified advisor. We just extract that information to work out your affordability. In reality it’s no more difficult than dealing with somebody that’s employed.
Can I get a mortgage on a new build with only one year of self employment?
In theory, yes, again, subject to the usual affordability checks and credit scoring. A couple of lenders would consider somebody with just one year’s self-employed experience, and they would also accept new build property. So yes, in theory, that’s achievable.
My most recent year’s earnings were less than my average. Will this affect my new build mortgage application?
If those earnings were significantly less, lenders would question what has caused that drop in earnings. If it’s explainable, though, and the drop wasn’t too much, the lender would just use the latest year’s income.
If it was a significant drop, you could run into problems with sustainability of income going forward. It would all depend on the individual circumstances.
How much can you borrow as a self-employed person?
It will very much depend upon the type of self-employed role you have and how you declare your income. Are you a sole trader or a director of a limited company? Or are you part of a partnership?
There are different ways lenders calculate that income depending on how you pay yourself. It’s too broad a question to answer specifically.
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How many times my salary can I borrow for a mortgage on a new build property?
If we extract a usable figure from a self-employed person, a very rough idea is that lenders will offer somewhere between about four to 4.5 times the income on the applicant’s tax returns. Again, that’s a very broad answer.
I would strongly advise anybody that is self-employed to engage with an advisor that understands all the nuances around how different lenders calculate income. You could go to one lender that says one thing – but with that same level of income, another lender will give you a completely different figure.
What mortgage deposit do I need if I’m self-employed? Can I use my self-employment grant as a deposit towards a new build property?
In terms of deposit, there’s no difference between somebody that’s self-employed or employed. As a general rule, anybody looking to buy a property should aim for a minimum of a 5% deposit, whether they’re employed or self-employed.
Self-employed grants wouldn’t be acceptable because the lender would want to understand where that money’s come from. My understanding would be that it would not be an acceptable form of deposit.
How will you be assessed as a self-employed mortgage applicant looking to purchase a new build property?
The term ‘self-employed’ covers a wide variety of different people, as we’ve mentioned, whether you’re a sole trader, partnership or limited company. There are different ways lenders will assess your income when looking at buying a new build property.
The key things are being organised with your accountant and being up to date with your tax documents, so that when you do come to look at a mortgage, you can provide the advisor with all the necessary documentation – tax computation summaries, company accounts, things like that.
Then, the advisor would guide you through to the most appropriate lender based on your individual circumstances. We do find that self-employed people are very different in how they approach that.
Will IR 35 affect my mortgage application?
Possibly – it depends on how that impacts your ability to class yourself as self-employed or whether HMRC would want you to effectively become employed by the person that you are working with. That’s probably one to double check with the tax man.
How will a lender calculate my self-employed mortgage earnings? How do I prove my income?
Someone who is self-employed would usually need two or three years worth of tax calculation summaries from their accountant, or SA302s from HMRC if you do your own tax returns.
If you’re a limited company director, get a copy of the last two years’ completed company accounts – because there are ways to potentially use retained profit within the business if you haven’t drawn it all out as dividends.
There are different ways your income can be calculated – it all stems back to putting yourself in front of somebody who fully understands all those different nuances in how lenders assess you, to essentially get you the best outcome possible.
How can a mortgage broker help here? Have you got anything else to add?
In the world of the self-employed, a mortgage broker can add so much value. We obviously add value to employed people too, but they could very easily walk into NatWest with three pay slips and the person behind the desk could tell them what they could borrow.
But for the self-employed, there are many different documents and sections of the company accounts we could use. Some people use net dividends, and some lenders add the tax back onto the dividends you’ve been paid. Each lender looks at that differently.
If you walked into NatWest with your self-employed documents, the borrowing figure you would get would be significantly different from the amount from Santander or HSBC. A mortgage broker really does add a huge amount of value to the process.
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