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Getting a Mortgage When You’re Self-Employed

12 - 02 - 2013

How accessible are Mortgages when you're self-employed?


There are now 367,000 more self-employed people in the UK than there were in 2008, according to the Office of National Statistics. Indeed, recent figures reveal that the number of people becoming self-employed has risen by 10% since the start of the economic downturn.
 
So, what effect is this increase having on the accessibility of mortgages for the self-employed?
 
‘It isn’t impossible for a self-employed person to get a mortgage, and in fact if your business has been running for three years or more then you will have access to most rates offered by the mainstream lenders,' said David Hollingworth, Head of Communications at mortgage broker London & Country.
 
‘It is possible to get a mortgage and it is not necessarily more complicated depending on your circumstances,’ he said.
 
‘It’s all about evidencing income and to do that lenders require two years of accounts or self-assessment.’

An End to ‘Self-Certified’ Mortgages

In the past, the self-employed with less than three years’ accounts could turn to ‘self-certified’ mortgages, which allowed millions of people to take out home loans without proving their income. However, having been banned by the Financial Services Authority in 2011, these mortgages are no longer an option.
 
But all is not lost for today’s newly self-employed. There are specialist lenders offering mortgages to people with new businesses. 

‘Those with less history can secure a mortgage, there are lenders that will look at those with less than two years and it may still be possible to find a mortgage,’ said Hollingworth.
 
However, Hollingworth advises the self-employed to approach mainstream lenders in the first instance.
 
‘Do not go straight to specialised lenders – some like Kensington Mortgages will specifically consider one year's accounts but they would prefer more. They are trying to put themselves in that specialist niche,’ he said.

‘You could get a mortgage from someone like the Halifax if you have an A+ credit score. They may consider one year’s accounts.’
 
The Lender’s Decision

In determining how much you can afford to repay, lenders will look at the net profits of your business or your income stated in your SA302 form if you are self-assessed for tax. The calculation will be based on the last year of accounts or an average of the past few years.

‘If the accounts have been steadily rising then they will be able to use the last year [when calculating borrowing] but if the accounts have been up and down over the last few years then the bank will look at the average income,’ Hollingworth said.

It is also worth keeping in mind that while some lenders will look on you more favourably if your accountant is chartered or certified, others will require your accountant to have one of these qualifications.
 
How We Can Help

Foremans have plenty of experience of our clients applying for and getting mortgages and will be happy to provide clients with a mortgage reference. If you have any concerns about getting a mortgage while contracting, please do not hesitate to call us on 01244 625 500.

 


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WEEKLY INCOME INFORMATION

Number Of Weeks
Tax Code
Primary Hours
Primary Rate In £
Secondary Hours
Secondary Rate In £
Other Hours
Other Rate In £
Weekly Bonus In £
Total Anticipated
Income For A Week
-
Anticipated Annual
Pre Tax Income
-
NORMAL WEEKLY EXPENSES
Miles Per Week
Other Expenses Per Week
Annual Mileage
-
Mileage Expenses
-
Total Annual Expenses
-
FLAT RATE VAT

Choose the Industry Sector that you work in. Use the drop down menu in the usual way.

The VAT Flat Rate Applied -

WARNINGS

-

 

Get Alerts. The law changes!

RESULTS TABLES

COMPARISON TABLE FOR NET INCOME

BUSINESS STRUCTURE
CORPORATE
SOLE TRADERS
UMBRELLA
AGENCY
Post Tax Weekly Pay
-
-
-
-
Avarage Hourly Take Home Pay
-
-
-
-
Annual Take Home Pay
-
-
-
-
Plus Taxed Holiday Pay Fund Less Higher Rate Dividend Tax
-
-
-
-
Annual Take Home Pay
-
-
-
-

RELATIVE INCOME BY STRUCTURE

BUSINESS STRUCTURE
CORPORATE
SOLE TRADERS
UMBRELLA
AGENCY
Measured against PSC
Measured against PSC
Measured against PSC
Worse off
Weekly by :-
-
-
-
-
Worse Off
Annually by :-
-
-
-
-
Measured against AGENCY
Measured against AGENCY
Measured against AGENCY
Worse off
Weekly by :-
-
-
-
-
Worse Off
Annually by :-
-
-
-
-

Fixed Data

PAYE

Tax Code L between 0 and 999.
0
Tax Rate
Personal Allowance
£11500.00
0.00%
Lower
£0.00
0.00%
Basic up to
£33500.00
20.00%
Higher above
£33501.00
40.00%

Statutory rates

National Minimum Wage
£7.50
Holiday Pay
10.77%
Mileage Rates
Per Mile
Up to 10,000 miles
£0.45
10,000 miles
£0.25

CIS

Rate
Percentage
Gross
0.00%
Standard
20.00%
Higher
30.00%

Corporation tax

Small Company Tax Rate
19.00%

National insurance

Primary Threshold
£8164.00
Secondary Threshold
£8164.00
Employers NI between PT and UEL
13.80%
Employees NI above UEL
12.00%
Employees NI
2.00%
Class 4 NI between LPL and UPL
9.00%
Class 4 NI above UPL
2.00%
Class 2 NI
£2.85
Annual LEL
£5880.00
Annual UEL / class 4 upper profits
£45000.00
Class 4 Annual lower profits limit
£8164.00
Weekly PT
£157.00
Weekly LEL
£113.00
Weekly UEL
£866.00

UMBRELLA COMPANY

Holiday pay accrual
 
Is Holiday Pay being accrued?
Yes

AGENCY INFORMATION

Agency Uplift Applied
10.00%

Assumptions



General                                                                                                                              

  • The user is over 21 and subject to tax in the UK
  • The user wishes to minimise their tax liability
  • The user is subject to national insurance i.e.he/she is not over retirement age
  • Only current tax rates and limits are applied
  • No tax mitigation payments are made e.g. pension contributions
  • Only 3 digit letter 'L' tax codes shown in the drop down list can be entered 
  • The user does not have a turnover greater than £100,000 where fewer reliefs and or higher taxes may apply

Expenses

  • All miles claimed as expenses are for business use using a personally owned car or van
  • All other expenses claimed are wholly, necessarily and where appropriate exclusively for the benefit of the business

Foremans LLP Charges

  • Foremans fees associated with Limited Company, Sole Trader or Umbrella are as per published rates
  • Foremans current Service Costs are allowed for in all calculations.

Holiday Pay

  • Holiday pay is accumulated week by week by Umbrella or Agency employer but paid out during the year

VAT

  • Limited Company or Sole Trader will be VAT registered
  • Limited Company or Sole Trader will take advantage of Flat rate VAT
  • Flat rate applied includes the benefit of the additional 1% applicable to the first year of VAT registration

Limited Company Conditions

  • One director / one shareholder in a Personal Service Company
  • Director of Personal Service Company elects to vote for 100% dividend after salary, costs and expenses
  • Director's salary is maximum salary to the primary threshold for NI
  • The Limited Company is trading normally i.e it is not subject to IR35 and is not a Managed Service Company

NOTES

  • The Current tax rates are taken from the Fixed Data Table
  • The current Value Added Tax Rate is 20% and is applied to all invoices and expenses as appropriate
  • The Director's Salary is fixed in relation to National Insurance thresholds. Higher Rate Taxpayers should consider the advantages and disadvantages of a larger annual salary or bonus
  • Higher Rate Taxpayers may wish to consider the advantages and disadvantages of shared ownership of their business
  • Users with a tax code other than three digits and letter "L" may telephone or email our Development Department to request a detailed calculation
  • Generally the use of an Umbrella rather than an Agency payroll is only efficient if sufficient weekly expenses are allowable and claimed
  • The expenses claimed under an Umbrella should not prevent the proper operation of National Minimum Wage
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Foremans LLP
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