Getting on the property ladder when you are Self Employed!
So, you are self-employed and you have found your dream home – may be its an apartment, a place for a growing family or the country estate you’ve always wanted – so what is stopping you from living that dream.
Here at Rift Accounting Ltd we are pleased to assist a number of our clients that are looking for a mortgage. But many tell us they are nervous as they are self employed and they have heard it is much harder to get on the property ladder, or get a bigger mortgage than if they had a PAYE job.
Research shows that over 30% of self-employed people avoid getting any advice either from their accountant or a mortgage broker as they have been led to believe that they will not be eligible. And they don’t want the embarrassment of being told ‘no’, so they simply chose not to pursue their dream.
There are over 4 million self employed people in the UK who will have irregular incomes or are struggling to put together 3 years of accounts. Therefore we understand why they may believe it’s not worth pursuing the dream – but with some organisation you may find that this could all change.
So…..what can you do if you are self-employed that will help you get on the property ladder?
Get your accounts filed as soon as possible after the tax year ends
The tax year runs from April 6th to April 5th each year. Research shows that most people file their accounts close to the deadline of January 31st.
There are several good reasons to file your tax return sooner. Don’t forget you still don’t need to pay any tax until the end of January (unless you are making payments on account), for example.
- you will know in advance how much your tax will be.
- you will be able to budget to put aside the money.
- A broker will need what is called a SA302 when you apply for a mortgage which proves your tax position, which you will have available as your filing is up to date.
- Pay your tax on time.
You will usually need at least 1 year of self-employed accounts, usually 3 years are required. But check with a broker, there will be numerous factors that they will consider.
If you find that dream property and your accounts have not been filed – you are already putting yourself ‘out of the running’ when it comes to making offers and getting a mortgage agreed.
Make sure your accountant files your self-assessment each year
There is a simple reason for this, many lenders will ask for an ‘accountants’ certificate’ when you apply for a mortgage, which needs to be prepared by the accountant who has completed your accounts.
Speak with a broker
Different lenders (banks or building societies) have different criteria and your broker should be able to help you to be matched to the best lender for your circumstances.
Plan your deposit
Lenders require at least 5% of the purchase price of a property as a deposit and you will have to prove where the money is from. You should discuss your plans with your accountant in order to plan the withdrawals from your self employed income over a period of time – this will also be well received from most lenders.
Check your credit file and make sure you are on the electoral role
There are many free ways to keep an eye on your credit status
Keep your credit cards under control – don’t let them max out.
This helps you to budget as well.
Get an agreement in principle from your mortgage broker
This is a mortgage offer from a lender which clearly states how much money they will lend you. This should quite literally ‘open doors’ for you, as estate agents will know that you are good for the money if they show you a property that you make an offer for.
Now for the big question…….asked by many who are self-employed……
How will a lender calculate how much can be borrowed?
Well, it’s a good question, and one in which as accountants we can only offer guidance – the most common way is by looking at the net profit over recent years.
Lenders will take into consideration many aspects of your accounts when you apply for a mortgage including regular spending, how many children you have etc.
Remember if you are eligible for a mortgage, it won’t make any difference whether you are employed or self-employed. It’s about what you can afford and being able to prove you have the income to make the repayments to buy your home.
Rift Accounting has many years of experience working on self-assessment tax returns and would be pleased to work with you to get your accounts in order and your returns in to HMRC. Then you can work towards buying your dream home.