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How do I get a mortgage if I’m self employed? - Ask Our Expert
Dear Chris,
I am a small business owner and I was wondering how I can get a residential mortgage.
I have been in business for six years, however I do not have any accounts.
I can prove my income through bank statements and through cheques that are provided from the company from which I franchise my business, but my accounts do not reflect my full income.
My accountant discloses all the appropriate figures to the tax man however my business does not show much of a profit.
However my accountant will also provide a letter stating my income before expenses to the bank.
Any help you can offer would be much appreciated.
Linda Gower
(via email 24 May 2010)Our money expert says…
Hi Linda,
Thanks for getting in touch but I have to be honest, your chance of getting a mortgage is looking rather slim at the moment.
For starters most lenders will need at least two or three years accounts as proof of self-employed income and they consider net (taxable) profit as opposed to gross turnover.
Furthermore, self-certified mortgages are very few and far between these days due to the restricted mortgage lending market.
In fact, when I asked a mortgage broker to have a look, they couldn’t find any self-cert mortgages on their search system.
The only way you will legally get a mortgage is to present your accounts to a lender.
Accounts
So the key here is your company accounts.
If you have been trading for longer than one year then you should have management accounts for the period of trading.
If you do not show these to the lender then big alarm bells will start to ring as there is no evidence of financial control.
On the plus side, if you were newly self-employed then things would be even worse as there would be no established long term pattern of income.
And if that were the case then the lender would see you as a higher risk than an established business.
Capital raising.
Also if you were taking out a mortgage on your home as a means of raising capital for your business then you would need to be prepared to answer why. Is it because the business is in need of funds for example?
Meanwhile, it might seem obvious but you must make sure you have a healthy deposit. At the moment at least 25% is required before you will be given an attractive mortgage rate.
However, like most things, the devil is in the detail.
Individual circumstances
If you have financial reserves and can prove affordability then lenders will see less risk in the mortgage.
However, if you cannot convince the lender that you have the ability and clarity to run a business profitably you will struggle to get a loan.
You must remember that banks are not in the risk business – they want to lend to a sure thing.
In all honesty, without accounts and strong financial reserves you are going to find it very hard to get a mortgage.
One possibility is that your current bank may be kind if you have been a loyal customer with them for a long time, but in this day and age, you will undoubtedly need proof of earnings.
Other than that, your options are fairly limited I am afraid.
My suggestion would be for you to approach a specialist mortgage broker for advice on this and be prepared to pay a fee and to get some unwelcome news.