This is the first question for most people looking to purchase. When you’re self-employed this isn’t such a straightforward one to answer.
First question is – How long have you been self-employed?
A handful of lenders will work on one year’s accounts but, a handful is probably being over generous. Most will want two if not three full years accounts before they will consider your mortgage application.
Second question – How much do you earn?
This really does provoke a range of answers, most of which are incorrect or illegal. The old favorite stock answer is “whatever I need to earn, my accountant will put down whatever my income needs to be”.
Another is, “I pay myself £1000 a week so I’m on £52000 a year”. A realistic answer is “I haven’t got a clue but I know my accountant does a good job & I don’t pay a lot of tax”.
I’m afraid that the lenders have got wise and closed the loop-holes around the self-employed, sorry there is now no such thing as “self-cert” anymore.
Lenders now require legitimate proof of income by way of the tax returns your accountant has submitted to HMRC.
To find out what your income really is &, what’s more important – what the lender will accept, you need to call HMRC on 0300 200 3310 and ask them to send you your latest three years SA302’s.
You will need to have your NI number as one of the qualifying answers.
Once you receive your SA302’s you can clearly see what your declared income is and will be aware if you are able to move forward with your mortgage application. The figure usually used is “Total Income Received” & best case scenario is that you will get up to 5 times this amount but 4.5 times is more realistic.
Some lenders will use the latest year’s figures if they are increasing, some will take an average of the latest two years, some, especially if there is a drop in profit will want to use an average of the latest three years.
You then need to deduct various commitments, make allowances for the number of dependent children, term of mortgage etc but at least you now know what you earn. With this information, a mortgage adviser will be able to use the lender’s affordability calculators to find out who will lend you the most & what rate it will be issued at.
Call Zing Mortgages now to find out how much you can borrow but, save us all some time & order those SA302’s first.
Believe me, until you have these figures its all pretty much guesswork, which is good for no-one.