Self Certification Mortgages for the
Self Employed
Important notice
We are currently unable to arrange self
certification mortgages.
One of the consequences of the Banking credit crisis
is that mortgage lenders have withdrawn from this type
of
lending.
We will be watching for any development in this area
The self employed represent a
growing proportion of the working community. You will
be regarded as self employed if:
If you are in a partnership,
lenders will assess as your income your share of the business net profit.
It is important to understand that
the lender will only use net profits (after deducting
business expenses).
You may be
starting work on a self employed basis and you may feel
that your initial expenses outweigh your income. A self
certification mortgage would be of use to you in these
circumstances.
Mortgage lenders are happy to lend
to the self employed. The traditional requirements are
sight of the last 3 years accounts, prepared by your
accountant
If you complete your own account,
the requirement will typically be 3 Statements of
Account from the Inland Revenue. Lenders use the “Net
Taxable Profit” figure as your income.
If the net profits are not
sufficient, then self certification may be a solution.
Self certification is not intended
as a means of lending to someone whose income is
insufficient. It is for those whose real income is
higher that that shown on their accounts.
It may be that you have an extra
income buying and selling on ebay. This is acceptable
if you are trading legitimately, that is, you have
registered the business with the Inland Revenue and will
be paying taxes on your net profits.
How long self employed
You can take out a self
certification mortgage having just started a business.
In these circumstances you will need a deposit of at
least 15%. If you are a first time buyer the deposit
will need to be at least 20%. Most lenders will not be available to you as
there will be no history and the chances of the business
failing will be relatively high.
Most self certification lenders
require that you have been trading as least 12 months.
You do not have to have produced your first set of
accounts.
All lenders will require that you
state a figure for earnings. This figure needs to be
sufficient to service the mortgage you want taking into
account any other commitments you have. Please discuss
income and outgoings with your broker who will be able
to advise how this will be assessed.
Mortgage lenders will not just
accept the figure submitted. They will apply
reasonability tests to the information and may take up
references.
Limited Company owners should
understand that the accounts you have posted at
Companies House are publicly available. Lenders are
likely to take up references.
Some lenders will take up
references and some will seek to establish that your
business is real and trading. This may include an
internet search or search of Yell.com.
If you employ an accountant then
they may be contacted. Typical queries to your
accountant may include the following:
-
How long have they acted for
you
-
How long have you been trading
-
Are you currently trading
-
Are your tax affairs up to date
Some lenders may request an
affordability reference. This type of reference will
ask the accountant whether, in his opinion, the
applicant can afford the mortgage given the current
level of commitments.
It is important to note that
accountants may not always be happy to provide this type
of reference as they may not be familiar with all your
financial affairs. Even if they are familiar, they may
not be prepared to confirm that this mortgage is
affordable. Please discuss this aspect with your
broker.
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