The number of people in self-employment is on the rise and now stands at 15.1% of all people in employment.*
As proof of income, affordability and type of self-employment can create a mortgage application that is a bit more complex than a standard mortgage for an employed applicant, brokers can help source lenders and products that might suit a particular set of circumstances. It’s a valid point that in many of these cases each one is different so requires an individual approach and an understanding of the self-employed market.
However, there are a growing number of people in self-employment. Recent figures show that for August to October 2019 there were a record 4.96 million self-employed people - 182,000 more than a year earlier.* This is a rising sector of the market and provides opportunities for brokers to help these customers find a mortgage.
We have a range of lending criteria to cover many of the different types of income that can be used to check affordability for various self-employed roles and for brokers these may open up new types of applicant.
From a lender’s perspective, we want to see proof of past income, so it’s your last 2 years’ Tax Calculations and Tax Year Overviews or we will contact your Accountant for a reference.
For sole traders with a minimum of 2 years’ trading, we can assess the average income over the last two years, or the latest income will be applied if lower. Income is defined as the applicant’s share of the net profit.
For limited company directors with more than a 25% shareholding we use salary/remuneration and dividends. We can consider such applicants with 1 year’s accounts but previously employed by the same company.
We will consider sole traders who have changed to a limited company status but only have 1 year’s accounts in the limited company status providing the structure and business remains the same.
We also accept applications from applicants who are employed but work for the family business.
There are opportunities for lending to an older age group and using earned income from applicants who have employees, where it can be demonstrated that income would continue at that level without the need for them to be ‘hands on’ in the business. For example an older applicant who owns a retail franchise and has managers in each store but the applicant does not need to go into work for the income to be earned.
As can be seen by these examples, various income types can be factored in to affordability calculations and allocated depending on the type of self-employment the applicant is in.
Lenders continue to provide more distinct criteria to accommodate a wider variety of income and employment types to help brokers in a growing market. Leek United will individually underwrite each case to see if there is a way to lend, but this needs to be done in such a way that it is responsible for the customer and the lender going forward into the mortgage.
Self-employed mortgages can have some extra considerations so there is an important role for brokers in helping the customer determine their past and current income, and future guaranteed work. The broker can also help in having an understanding of the lenders in the market that provide the most suitable criteria for each applicant.
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