Getting a mortgage as a freelancer

Around 14.8% of the UK population is self-employed. With such a huge proportion of the population heading down the self-employed route, it’s important for mortgage providers to keep pace.

The self employed do not have simple and straightforward salaries, which can make it difficult for lenders to determine eligibility and calculate affordability. While it may be more complicated, more and more lenders are waking up to the idea that self-employed individuals are just as capable of paying back mortgages. If you’re a freelancer looking to get on the property ladder, read on to find out how to make this industry work for you.

How to get a freelancer mortgage

The important thing to remember is that there is no such thing as a “freelancer mortgage”. Instead, what you are looking for is a lender who will accept applications from freelancers. Once you have passed the application phase, the mortgage products are identical to salaried workers.

The easiest route to finding a mortgage provider who will accept your application is to speak to a specialist broker. We can help put you in touch with a mortgage broker who will be able to give you access to the full market, ensuring that you get the best possible deal.

Why is it harder for freelancers to get a mortgage?

Mortgage providers are primarily concerned with risk and affordability. If you can’t afford your mortgage repayments, then they might struggle to be able to recoup their money. This is why lenders ask borrowers to provide details of their income. For a salaried worker, this step is very simple. They simply provide their annual salary and then a breakdown of their monthly expenses. But for the self-employed, proving their income can be rather more difficult.

This is primarily because freelance income tends to fluctuate. You might earn a lot one month and not very much the next month. But over a whole year, you might earn more than your would in a 9-5 office job. To manage their risk, lenders will often ask to see multiple years of accounts for freelancers. This helps to offer some assurance than monthly fluctuations in income are not indicative of insecure income.

However, a rising number of specialist lenders mean that the industry is starting to catch up with new ways of working. While a traditional lender might ask for 3 years of accounts and a huge deposit, a growing number of lenders are relaxing these rules to make it easier for freelancers and the self-employed.

I’m a contractor, does this count as self-employed?

A huge problem faced by some workers is that their job isn’t clearly defined as ‘employed’ or ‘self-employed’. There is a grey for contractors which can make it difficult to get a mortgage. You could be self-employed, but only working for one client. In this case, should you apply as a freelancer or not? The simplest answer is this… if you take care of your own tax returns, then lenders will consider you to be self-employed. However, you may be able to use evidence of past contracts and contract renewals as further evidence of your income stability.

Few brokers have experience with freelancers

Not all brokers have experience working with freelancers, so it’s important to choose the right one. Whole of market means that they have access to all lenders, not that they have experience with all employment types. This is why it can be confusing for some freelancers.

Applying for a mortgage with the wrong lender can result in a rejected application. But don’t let this sway you. Another lender might be more than willing to work with you, so it makes sense to shop around and work with brokers who understand your needs. This is where Niche Mortgage Info comes in. We’re experienced in helping freelancers find the right broker for their needs.

How long do I need to be self-employed before I am eligible for a mortgage?

Lenders will take the length of time you have been running your own business as a key indicator of your financial stability. Many lenders will ask to see your accounts for the past 3 years, but some will consider 1-2 years. A very small number of lenders will be happy with 6 months of accounts.

If you have only recently switched to freelancing and you are experiencing fluctuating income, you may find it more difficult to secure a mortgage.

What if I form a partnership or limited company?

The way lenders calculate self employed income for mortgage applications will differ depending on whether you are a sole trader, limited company or partnership. For a sole trader, the majority will look at your net profit either before or after tax. For a limited company or partnership, the majority will look at your salary and dividends as proof of income. Some will also include your share of company retained profits to help boost your borrowing amount.

If you are self-employed as a sole trader, you will need to provide your SA302 forms as proof of annual income. If you form a limited company or partnership, you will need an accountant to provide evidence of your income.

What if I have a fixed term contract?

Some freelancers work on fixed term contracts, similar to that of salaried workers. Some lenders will accept this type of income, provided the contract has been renewed in the past or you have at least 6 months left on the contract.

If you have simply moved to a different working status but you have worked in similar roles in the past, lenders might be more willing to accept this as evidence of stable income. On a fixed term contract, your monthly income is more likely to be steady, which is an attractive feature for lenders.

How to calculate how much you can borrow

Once you have found a lender who is happy with your income and employment status, you will then need to work out how much you can afford to borrow.

Lenders will look at the following factors:

  • If you are a sole trader, lenders will look at your net profit, usually over the last 3 years. Some will take an average of the past 3 years and some will take the most recent year. 
  • If you are a limited company director, lenders will look at your salary and dividends as proof of income. Some lenders will also include your share of any retained profits, allowing you to borrow more.
  • If you are part of a contractor, lenders will either look at the contract value or the day rate. For a day rate calculation, they will calculate annual earnings by multiplying your day rate by 5 and then multiply this by the number of working weeks in a year.
  • If you are an employed worker, lenders will look at your basic salary plus any other forms of income. They might only accept a percentage of additional income, depending on how regular it is.

How is affordability calculated?

Affordability calculations are how lenders decide how much you can borrow. In general, it will be a multiple of your annual income. Some lenders will allow you to access 4x your annual income while others will lend you 6x your annual income. How you calculate income is therefore very important when determining how much you can borrow.

For example, a contractor with a day rate of £250 might be able to access between £230,000 and £345,000

How did we work this out?

Day Rate (£250) x 5 = £1250 x 46 (working weeks) = £57,500 annual salary.

4 x this salary would be £230,000 and 6 x this salary would be £345,000

This could mean the difference of £115,000 depending on which lender you approach.

Can I get a buy to let mortgage when freelancing?

Provided it is affordable, you should have no trouble securing a buy to let mortgage while freelancing. Some lenders will have minimum income requirements for buy to let mortgage which can range from £15,000 to £25,000. It can be more difficult for those on variable income to provide evidence that they meet this earnings threshold.

If you already own your own home, some lenders will consider you provided the rental income will be enough to cover the mortgage payments. If you don’t already own a property, then your application will be considered like any other mortgage application. You will not be able to use potential rental payments as proof of affordability.

This is because lenders are concerned that self employed borrowers would use a buy to let mortgage to sidestep the requirement to prove that a property is affordable. On the other hand, if you already have a portfolio of properties, it could be possible to secure a mortgage without providing any evidence of income.

Next steps

If you want to get on the property ladder as a self-employed individual, the first step is to get in touch with the right broker for your needs. We can help put you in touch with a wide range of brokers who are experienced in handling freelancer mortgage applications.

How to live mortgage free

Everyone dreams of the day when they have paid off their mortgage and they are living mortgage free. Not many people know that you can achieve this sooner with a few simple steps and a lot of discipline. Imagine paying less interest, getting rid of your monthly mortgage payments and enjoying the complete peace of mind knowing that your home is your own.

If you dream of living mortgage free before you reach retirement, it’s not completely out of reach. Your mortgage is probably your largest monthly expense, so the prospect of paying it off early is likely to be an attractive prospect. Short of moving into a shipping container or swapping your three bedroom semi for a canal boat, there are a few tips you can try to help pay off your mortgage debt faster.

In this blog, we’ll share some of the most popular ways Brits can get rid of their mortgage payments sooner.

Set yourself a target

You’ll never pay off your mortgage early without some serious planning. If your aim is to pay off your mortgage in 10 years time, think about how much extra you will need to pay every month. Then calculate if this is even feasible with your current earnings and outgoings. If it isn’t possible, either extend your target, find a way to boost your income, or cut back on your expenses. For example, if you get rid of your car and use public transport, you could put the money you save towards paying off your mortgage early.

Make payments every two weeks instead of monthly

By switching to bi-monthly payments instead of monthly payments, you can actually increase the amount you pay back. There are 52 weeks in the year, so if you switch to making payments every 2 weeks instead of monthly, at the end of the year you will have made 13 full payments instead of just 12. This is a great way to chip away at your mortgage payment without realising you are paying more.

Increase your principal payments

This hardly deserves its own point on the list given that it is so obvious. The simplest way to pay off your mortgage sooner is to increase your principal payments or make more payments. When you make principal payments, these go towards bringing down the principal amount, rather than going towards the principal and interest. Many lenders will offer principal only products.

Put spare money towards your mortgage

Once you have your finances in order, you may find that you have spare money left over at the end of the month. Any extra cash should always go straight towards paying off your mortgage. If you get a pay rise at work, for example, put the extra money every month towards your mortgage. You won’t even notice that you don’t have the extra money, but it could have a huge impact on how quickly you pay off your mortgage.

Remortgage your property

Remortgaging is simply paying off your existing mortgage with a new mortgage and using your property as security. Most of the time, people remortgage to be able to secure a better deal and reduce their monthly payments. However, if you choose to remortgage and pay the same monthly payments, this could help to pay off your mortgage far quicker. Don’t forget to check the fees associated with remortgaging to ensure it is the right move for you. 

Build your own home

Saving the money to build your own home could save you a lot of money in the long run. A short term self-build mortgage can help you to get the materials and labour you need. In theory, you could build two adjoining houses and then sell the neighbouring property when it is complete. If you are smart with your expenses, this could be enough to pay off the entire self build mortgage. Then you would be living mortgage free in a house you built yourself.

Take in a lodger

Taking in a lodger or putting a room in your home up for rent on a home sharing website could help to boost your monthly income from your property. It might not be the ideal situation for everyone, but if you don’t mind opening your home to strangers, the extra income could go a long way to helping you pay off your mortgage early.

Should I use a mortgage broker or a bank?

When you are thinking about buying a house, your instincts might tell you to keep things cheap. This might mean going for the cheapest conveyancing quote, opting for a bank over a broker and even opting for the cheapest house survey. You’re already making a huge investment, so why wouldn’t you want to keep your costs down?

When it comes to choosing between a bank and a broker, many prospective buyers will choose the former because they are concerned about the fees associated with the latter. In this article, we will outline some of the reasons this can be a false economy.

 While you might be saving yourself the fees in the short term, in the long term, opting for a bank over a broker can lead you to pay thousands and even tens of thousands more on your mortgage. Read on to discover why a mortgage broker can actually save you money over going directly to high street lenders or your own bank.

Access the whole market

By working with a mortgage broker, you will have access to a wider range of lenders. A whole of market broker is one with connections and contacts across a huge selection of providers. This means that they have in-depth knowledge of the products available from many different lenders.

This kind of access and overview of the market is invaluable when you are looking for the best deal on your mortgage. And the best brokers will also offer up-to-date offers, meaning you will be the first to hear about new offers as they become available.

Find specialist lenders

If you are in a unique situation then working with a broker can help you to avoid being rejected by high street lenders. For example, if you have poor credit or if you have unusual income from freelancing, for example, then a broker will be able to point you in the direction of a lender who is more likely to accept your application.

It doesn’t matter how unique you think your situation is, a whole of market broker will be able to help you navigate the mortgage application field. You could have poor credit, irregular income through self employment and be looking for a buy to let property and a whole of market broker may still be able to find you a lender willing to work with you.

Not only can they help people in unique situations but they can also help those who are looking for the best deals. You don’t have to settle for high rates from your bank just because you have poor credit history.

It’s also worth noting that having your mortgage application rejected can damage your credit score and prevent you from securing credit in the future. This is another reason working with a broker can be so helpful. You will be able to avoid rejected applications which can damage your credit score and make it harder to secure a mortgage.

Access expert advice

Searching for a mortgage can be overwhelming. Very few people are experts in this field, and why would you be? You only need to know the information for a short time, just enough to be able to make an informed decision. But the mortgage market is always changing and updating, which can make it hard to get up to speed. This is where working with a mortgage broker can really help. You don’t have to be an expert, because your broker is there to help you navigate the industry. They’ll help you to understand key terms and also avoid any hidden costs or difficult payment terms. 

It’s convenient

Perhaps the most overlooked reason for working with a mortgage broker is convenience. You might think you are saving money by doing all of the research yourself, but your time is also worth a lot. If you want the convenience of knowing that everything is in hand and you can simply sign on the dotted line with confidence then a mortgage broker is perfect for you.

If you want to find out if a mortgage broker could help you in your unique situation, get in touch with Niche Mortgage Info today. We will be able to help you navigate the mortgage market and put you in touch with the right broker for your needs.

What should I declare when selling my home?

If you’re thinking about selling your home, you may be wondering about the legal requirements. While you will naturally want to highlight the positives and gloss over any negatives, there are rules surrounding what you must legally declare when selling your home.

All sales and home descriptions are governed by the Consumer Protection Against Unfair Trading Rules. These rules are in place to protect buyers and ensure they have all the right information to allow them to make a decision. 

If you fail to declare something important during the selling process, you could face prosecution as it is a criminal offence to withhold information. This is why it’s always best to err on the side of caution and let the buyer know everything they need to make an informed decision.

What do I legally have to declare?

Before you can sell your home through a UK estate agent, you will need to fill in a number of forms. These forms will outline why you are selling and also cover any important points which need to be noted about the property. In general, you will need to declare the following:

  • Any structural changes to the property which have been made, either by you or by a previous owner
  • Disputes about party walls and boundaries
  • The presence of Japanese knotweed on the land and how it is being managed
  • If any of your neighbours have an ASBO
  • If your property is on a flight path
  • If there has been a violent death at the property
  • If the area has unusually high crime levels

These might all sound like the kind of things you want to keep quiet from potential buyers, but you will have to disclose them to your estate agent. If you aren’t sure what is relevant, check with your estate agent or conveyancing solicitor. 

Declaring subsidence

The issue of subsidence falls under the structural integrity of the property. If your property or any extensions or planning permission applications have been affected by subsidence, you should provide as much information as possible. You might think that this would put buyers (and their lenders) off, but a well-managed case of subsidence doesn’t have to be cause for concern.

Provided you have the right paperwork in order and the condition is under control, it shouldn’t have a huge impact on the value of your property. And by declaring it, you will help to give your buyer peace of mind.

There is no time limit on how long you have to declare subsidence. This means that any old cases should always be mentioned, even if they are no longer problematic. This will nearly always come to light in the buying process, so it makes sense to be upfront. These are some of the most common ways that a case of subsidence will come to light.

  • The buyer’s solicitor uncovers it during their searches
  • The surveyor notes physical evidence
  • The buyer’s insurance provider uncovers a record of it on a central insurance database

For this reason, it makes sense to declare everything from the start so there is no confusion. A nasty surprise further down the line could quickly sour the buying process.

When do I need a TA6 form?

When you sell your property, you will need to fill in this document. It’s around 15 pages long and covers a range of questions related to your property. If you fail to disclose something that later causes a problem for the buyer, you could face legal action. It is intended to be a comprehensive document which helps to establish everything the buyer needs to know about the property.

In 2017, the TA6 form was revised to include the presence of Japanese Knotweed on your property. It’s important that you make sure you understand the document and what is being asked of you. The responsibility lies on the seller to ensure the document is accurate and that they understand what they are signing. Vague answers might help to sell your home faster, but they also leave you open to legal action in the future.

Honesty is always best

While it might feel like you are sabotaging your own chances of selling your property, it’s a legal requirement that you share all of the negative details. If you are moving into a new home, imagine that the seller of your new home hid vital information from you. If the tables were turned, you would likely be distraught to learn that your new dream home had a history of structural problems.

While some details might rule out your property for some buyers, others will be willing to overlook the issues because the property has enough redeeming features. By being honest and open about the property from the start, you will avoid unnecessary viewings and will automatically narrow down the potential viewings to people who are aware of the risks. In many cases, these issues won’t impact the value of the property, provided that the issues are under control. 

Another benefit to being honest when selling your property is that it protects you from legal action. When selling your property, you should always keep your documents in order and make sure you keep evidence of your declarations. This should protect you from legal action should the buyer decide to sue you for misrepresentation. If at any stage you are unsure about your legal obligations, check with your estate agent. They will know how to be honest about the problems with your property without putting off potential buyers. 

8 frequently asked questions about mortgages… answered

When you first start looking for a new home, the process of securing a mortgage can be completely overwhelming. With this in mind, we have put together this guide to the eight most commonly asked questions about mortgages, complete with answers. 

1. What are the main types of mortgage?

Mortgages can be split into four main categories: repayment mortgages, interest only mortgages, cashback mortgages and buy-to-let mortgages. Within these main mortgage categories, there are further sub categories.

Repayment mortgages

With a repayment mortgage, you are making payments towards the principal amount plus any additional interest. Payments are usually set for a number of years, usually over 25 years. The type of mortgage you choose will depend on your affordability. For example, a tracker mortgage will track the Bank of England base rate, meaning that your payments could go up or down. You should only choose this if you can afford your payments to increase. A fixed rate mortgage, on the other hand, will give you fixed repayments for a set period, usually 2, 3, 4 or 5 years. This can be ideal if you want to set a budget and stick to it.

Interest-only mortgages

With an interest only mortgage, you payments will be lower as you are only paying off the interest. At the end of the term, you will need to pay off the mortgage in full, so you should only choose this if you will be able to save the money to pay off your mortgage at the end.

Cashback mortgages

This is a kind of incentive that rewards the applicant with a lump sum once the mortgage is paid out. It can work out more expensive, but if you need help with moving or renovation costs, it can be a useful option.

Buy-to-let mortgages

If you plan to let out the property, you would need to apply for a buy to let mortgage. With this type of mortgage, the rental payments of the property will need to be enough to cover the mortgage payments.

2. How does mortgage interest work?

When you apply for a mortgage, the lender will decide how much interest you will pay. This is usually calculated based on how much deposit you can provide. Those with a 40% deposit will be offered better interest rates than those with a 10% deposit. 

3. Are my mortgage payments tax deductible?

The interest portion of the mortgage repayments can be tax deductible, but only if you rent out the property. You will also need to declare your rental income on your tax return.

4. Do I need a mortgage broker?

You don’t have to use a mortgage broker, you can go directly to the bank or building society to make an application. However, there are benefits to working with a broker. Perhaps the most obvious is that they will have in-depth knowledge of the mortgage market and will be able to advise you on the best course of action.

5. Which mortgage brokers are the best?

When choosing a mortgage broker, you should always opt for a ‘whole of market’ broker. This means that they have access to a wide pool of lenders and are not affiliated with any one lender. This will ensure you can work with your broker to find the best possible deal from a lender that is likely to accept your application.

6. Which mortgage should I choose?

This will all depend on your financial situation. You will need to think about your current circumstances and how your circumstances might change in the future. Working with a mortgage broker can help you to understand your options and make sure you are able to make an informed choice.

7. Who are mortgage underwriters?

The mortgage underwriters work for banks and make a decision as to whether they should accept or decline a mortgage application. They are trained to look at a number of factors to assess the risk of lending to an individual or couple. They also decide if a bank should lend money for specific properties.  

8. What happens when I have paid off my mortgage?

Once you have completed your mortgage payments, you own your home completely. You should receive a letter from your lender confirming that your repayments are complete. If you decide to sell your home, you will be able to keep all of the proceeds of the sale.

Which is harder, moving home or being a first-time buyer?

An ongoing debate in the mortgage world is whether it is more difficult to be a first time buyer or a second time buyer. As a first time buyer, everything is new and scary. The learning curve is incredibly steep and you have to become an expert in everything from mortgages to conveyancing in a short space of time.

However, as a second time buyer, you not only have to deal with buying a new home, you also have to manage selling your old home. Each side has its perks and pitfalls, but which one is more difficult? In this blog, we’ll look at some of the ways you can make life easier as a first time or second time buyer.

Getting help as a first time buyer

Being a first time buyer is no doubt a daunting experience. But it’s important to remember that there is a lot of support available. Not only in terms of financial support, but also in terms of getting advice. First time buyers have access to the Help to Buy ISA and other schemes which can make it easier to get on the property ladder. In addition to this financial support, you will also be able to ask for advice from these organisations. 

Mistakes first time buyers make

One common mistake that first time buyers make it assuming that the estate agent is their best friend. It’s important to remember that you are not their priority. They work for the seller, so you shouldn’t rely on the estate agent to do anything except try to sell you a property.

If you follow their advice, you could end up with a mortgage that isn’t right for you, or paying too much for a property. Remember that they earn commission on the sale, so it’s not uncommon for them to say anything you want to hear just to get you to make an offer.

Another common mistake is to assume that you can only use the conveyancing solicitor suggested by the estate agent. They will often have financial agreements with solicitors and may receive a commission for every referral. This means you could end up paying more than you need to.

Support for second time buyers

When you are a second time buyer, you’ve already been around the block. You know how the mortgage application process works and you can navigate with a bit of confidence. However, you are also in a delicate situation where you need to find a buyer for your home while also looking for a new home.

This can be very stressful, but remember that you are now in the driving seat. As a second time buyer, estate agents will suddenly be very keen to help you out. Remember that you are the client this time around and you call the shots. But don’t make the mistake of going for the cheapest option. Paying more in estate agent fees could be worthwhile if the agent is quick to find a buyer and they secure a higher purchase price.

Mistakes made by second time buyers

Most of the mistakes relate to selling your existing home. Simple things like letting the maintenance standards fall can seriously damage your ability to see your home. Setting the asking price is also a difficult field. If you overvalue while fully expecting to accept a lower price, you could lower your potential audience as people search based on their price range.

And finally, failing to be flexible with viewings can be another reason properties don’t sell. It might be annoying keeping your home spotless while strangers trudge around your halls, but you will likely be doing this to other people in your search for a new home. 

Both can benefit from a broker

Whether you are a first time buyer or a second time buyer, it makes sense to shop around for the best mortgage deal. By working with a specialist broker, you will have access to the latest offers and deals. Having your mortgage application declined for any reason can delay the home buying process and may even lead you to lose out on your dream home. By working with a broker, you can be confident your application will be accepted.

How much can I borrow being Self Employed

How much can I borrow?

Obtaining a mortgage when you’re classed as self employed can prove a little difficult now that the calculations can no longer be based on a self employed person’s declared income, as was the case with the now defunct paradigm of self-certification.

Since the 2011, the ‘self-cert’ mortgage has been banned in the UK, as there were fears that people were being offered borrowing that they couldn’t afford. Lenders in the modern day lenders in the mortgage market are required by law to ask for proof of income, as evidence of a self employed person’s ability to make the necessary payments.

Whilst the majority of lenders will ask for three years of business accounts as standard, specialist brokers are able to provide access to lenders that are able to be a little more flexible. The truth is, that operating for a minimum of three years is an indication that you’re able to afford a mortgage, but not a guarantee. Some lenders will consider applications with as little as 1 year of self assessment history. If you’re a director of a limited company then they may even consider lending based on your companies net profit. 

On the basis that you’ve been accepted for your mortgage the amount you’ll be able to borrow will be determined by the income details you’ve have been able to provide. Typically speaking, it will be equal to between 4 and 5 times your provable income.

For example, if you want to buy a house for £200k and have a 20% deposit to put down, you’ll need to show a self assessment income of £40k.

If you’d like more information on how to work out what you can afford, then speak to a specialist broker.

Self-employed net profit mortgages explained

When you’re self-employed, getting a mortgage can be more complicated than it is for those in more traditional employment. You might be worried that your lending options are more limited, After all, most lenders will be cautious of lending to those who work for themselves. However, it’s worth noting that some lenders will be more than happy to work with you, given the right circumstances.

If you are self-employed, a net profit mortgage is one way that you could get on the property ladder. In this blog post, we will explain what is involved with a net profit mortgage and how you could go about securing one.

What is a net profit mortgage?

A net profit mortgage is one where the lending decision rests on the net profit of your business. Whether you are a sole trader or a company director, you could be eligible for a net profit mortgage. Lenders will take one of two approaches to determining eligibility. 

Lenders will either look at the net profit before tax or after tax. This means that there can be huge discrepancies in the amount of money a lender is willing to offer. While some might reject an application based on post-tax profits, others might say yes to your application. This is why it is always worth shopping around when you are looking for a self-employed mortgage. Some mortgage brokers have vast experience dealing with net profit mortgages and this makes them ideally placed to offer advice and guidance.

If you need help navigating the world of net profit mortgages, make an enquiry with Niche Mortgage Info today and we’ll put you in touch with the best experts for your needs.

Am I eligible for a self employed mortgage based on net profit?

If you own you own business then mortgage providers will consider you to be self employed. This means that you generate profit rather than earn a salary. Your total income minus your business expenses is your net profit, and this is often the figure lenders will use to calculate affordability. You are eligible for a net profit mortgage if you are:

  • A freelancer or sole trader
  • Part of a partnership
  • A director in a limited company

In addition to meeting the requirements above, you will also need to satisfy the following requirements. Lenders will look at the following to make a lending decision.

  • How long your business has been trading
  • The amount of deposit you have saved
  • Your credit history
  • Your age at the time of application

How does the process differ for sole traders and company directors?

Sole traders and company directors will calculate their income in different ways. This means that lenders will be interested in different things depending on your self-employed status.

Net profit mortgages for sole traders

The main consideration for lenders will be fluctuations in your income. This is because they are mostly concerned with the affordability of the loan. For example, if they can see that your profit has increased year-on-year, then they may use the lower figure to calculate how much they will lend you to be cautious. Some lenders will take the most recent year’s profits to calculate affordability and others will take an average of the past few years.

In cases where your net profit has fallen, some lenders will not accept your application if your income has fallen by more than 20%. This is because it signals income instability and could indicate that you might not be able to keep up with future mortgage payments if your net profits were to fall again.

Net profit mortgages for company directors

Income for directors will be different to that of self employed individuals. If you are the director of a company, lenders will look at the salary and dividends you withdraw to calculate affordability. Some will also consider your share of the company retained profits, which can increase the amount you can afford to borrow.

How much deposit do I need to get a net profit mortgage?

There isn’t a set amount that you need to save as every lender will assess each mortgage application on its own merit. The amount of deposit you require will all depend on your personal circumstances and the level of risk. If you have a long trading history and a good credit history then you may be able to secure a mortgage with a smaller deposit.

As a general rule, the more deposit you can provide, the better rate you will be able to secure. By saving a larger deposit, you will be applying for a low LTV (loan-to-value). Aim for at least 15% of the property value and you should have access to a wide range of lending options.

Will a net profit mortgage calculator help me?

There are net profit mortgage calculators available which can help you work out how much deposit you need and how much you might be able to borrow. However, you should remember that these are only a rough indication and do not guarantee that a lender will accept your application or lend you that amount. Instead, you should rely on speaking to a specialist on the subject by getting in touch with Niche Mortgage Info today.

How much can I borrow with a net profit mortgage?

This will all vary depending on the lender. But there are several factors you can think about which will help you to determine how much you might be able to borrow. As a general rule, the higher the loan you want, the more evidence you will need to provide. For example, a loan of £500,000 will require more extensive trading history. If you’ve been trading for less than a year, you are unlikely to be eligible.

In addition to evidence of past earnings, some lenders may also ask to see evidence of future earnings. This could be in the form of contracts for future work or retainer contracts. Once you have satisfied the earnings portion of a mortgage application, you will have access to the same products as other applicants. Most lenders will offer a multiple of your income, usually around 4x, 4.5x or even 5x in some circumstances. 

How do I apply for a net profit mortgage?

Many people assume that self employed individuals have access to different mortgage products. This isn’t really the case. Instead, the mortgage application process is different, but once you have passed all of the checks, you have access to the same products. The first step to securing a net profit mortgage is to seek the advice of a broker with access to the full range of lenders. As you are looking for a niche mortgage product, it makes sense to shop around to make sure you get a good deal.

Before you apply for a net profit mortgage, you should think about the following factors:

Affordability

Perhaps the most important thing to think about when looking for a mortgage is the affordability. You might feel confident that business is booming and you’ll easily be able to make the payments, but you need to be able to demonstrate why this is the case to your lender. Expect to be asked for copies of your tax returns to prove income. They may also want to see your accounts to see how regular your income is. And finally, they may want to see evidence of current and future contracts to determine the viability of your business.

How does bad credit affect a net profit mortgage?

Having poor credit history won’t necessarily rule you out of being able to secure a mortgage, but it can make it more expensive. Any kind of lending will become more difficult and more expensive when you have poor credit history. You will need to show that your current financial situation won’t hinder your ability to pay back your loan. You may also need to provide a larger deposit in order to minimise the risk to the lender. This could be as much as 20% in some cases, but again, this will all vary based on the lender.

Can I get a buy to let property with a net profit mortgage?

Provided you can meet the requirements set out by the lender, you should be able to get a mortgage for a buy to let property. In general, rates for buy to let properties are higher and you may also be asked to provide a larger deposit.

Why you should get expert advice for your net profit mortgage

Mortgage applications are complicated at the best of times and it can be difficult to know where to turn to for the best advice. Everyone is different, which means every mortgage application is different. The best place to start when thinking about a net profit mortgage for the self employed is to speak to a broker. Brokers are trained to know which lenders are more likely to accept an application based on an individual's circumstances. They will be able to open the door to niche and specialist lenders who you might not have previously considered.