Self-Employed First-Time Buyer

How much can I borrow for a mortgage as a self-employed first-time buyer?

There are two things to look at here. The general income multiple for first-time buyers is roughly 4.5 times your income, but how we assess that income and what the lender uses can have a massive impact.

A lender might say they will lend you a maximum of 4.5 times your income. But if you’ve got a big car loan and multiple credit cards, the monthly affordability will be lower. The lender will then decrease the loan size accordingly.

Professionals can get a little bit more leeway, especially higher earners – but most professionals are in employed positions rather than self-employed. Generally, beyond 4.5 times your income is probably pushing it for a self-employed first-time buyer.

How is a mortgage calculated for a self-employed first-time buyer in the UK?

It’s the same if you’re self-employed and not a first-time buyer. If the lenders treat you as self-employed, they’ll either look at your tax calculation and tax overviews, showing your salary and dividends, or they look at your net profit. It depends on your company ownership structure.

If you need a higher mortgage, we tend to look at your accounts, which show your salary and your net profit. The net profit is almost always higher than dividends – because you shouldn’t be drawing out more than your overall profit.

Potentially, that multiple of 4.5 or five times is applied to a larger sum, which means a bigger mortgage.

What documents do I need to apply for a self-employed first-time buyer mortgage? How do I prove my income?

Everybody needs proof of their deposit, three to six months’ bank statements and ID.

The main difference with documents for a self-employed first-time buyer is in proving your income. If you’re a sole trader, we’d be asking for two years’ tax computations and tax year overviews.

If you’re a limited company, it’s the last two years’ accounts. Some lenders will instead ask for a reference from your accountant – they fill in the details and sign a form. The accountant needs to be registered with certain regulatory bodies as stated by the lender.

First, we work out whether you’re a sole trader or limited company, then confirm which documents we need. We’ll request those from you as early as possible. Then we can see the same numbers as the lender, to make sure we’re getting it all right from the get-go.

How can I improve my chances of getting a mortgage as a self-employed first-time buyer?

Getting in early with a mortgage adviser is really important. There’s an in-joke between brokers and accountants where accountants need a mortgage adviser in-house, and vice-versa. It’s because HMRC and your accountant can give you very different information compared with lenders and brokers.

The first thing to understand is what a lender will be looking at. Some people have run businesses for a long time, but their latest year shows a dip in profits compared to previous years. They worry that this will have a big impact on their mortgage options.

It could do, but most lenders will just want to know why that happened. We can talk to you and your accountant about the reason. Maybe you purchased a property, equipment or stock, and because of that things are now going really well. If we can explain this, we’re much more likely to get through. Just be fully prepared to get any documents we need.

Being registered and up-to-date with all your tax liabilities is also really important. We will make sure that your tax year overviews and tax computations all match and everything’s up-to-date.

How do I apply for a mortgage as a self-employed first-time buyer? How can a mortgage broker help?

The first step is to talk to an adviser early in the process. Then you will understand your affordability and how a lender is likely to interpret your income.

Clients often come to us saying they are employed or self-employed, but a lender will see them as the opposite. When we dig deeper, sometimes this is where clients are employed by their own business. Trying to use a salary paid by your own business won’t work – it just causes problems.

Just be open and honest with us – we are here to help and guide you. With the right information we’ll find the most appropriate lender for your scenario.

Key Takeaways:

• Self-employed first-time buyers have access to the same mortgage types (fixed-rate, variable, lower deposit) as employed individuals.
• Proof of income is the main challenge; a broker’s expertise is crucial for interpreting income and finding the right lender.
• Lenders typically require two years’ proof of income (tax computations/overviews or accounts), though some may accept one year.
• Deposit requirements are generally the same as for employed first-time buyers; the standard minimum deposit is at least 5%.
• Early advice from a mortgage adviser is key for understanding affordability, interpreting income, and preparing documents for a positive outcome.
  
  

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.

For specialist tax advice, please refer to an accountant or tax specialist.