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Mortgage advice for business owners

23rd April 2018

Congratulations, you’ve done it. You’ve finally decided to follow your dreams and start your own business. No longer subordinate to “the man”, you are the master of your own fate, the captain of your soul. There’s only one thing left to do. Find a mortgage that actually suits you.

Historically it has often been difficult to obtain a mortgage as a fledgeling entrepreneur. A lack of determinable income isn’t offset by promises of future harvests, and shouts of “but it’s the next Google” tend to fall on deaf ears. Most lenders typically require two years of audited accounts if business owners wish to apply, raising the bar out of reach of many. However as the working landscape has shifted, more and more lenders are offering alternative options – meaning that, although still difficult, getting a business mortgage can be highly achievable.

 

Categorisations

To clarify, ‘self-employed’ individuals are those who own twenty-five percent of a business or more. This means that those in a partnership are, for all intents and purposes, treated in the same way as sole-traders. It’s also important to note that while the application criteria differ, the range of mortgages available to you should be the same, with most lenders seeing no reason to discriminate on the basis of employment type.

 

How are mortgages calculated?

Self-employed mortgages are calculated slightly differently to fixed income mortgages. For sole traders and partners, lenders consider net profit as income. When it comes to limited companies, salary and dividends are the primary considerations. It’s therefore important to recognise your legal status and consider mortgages appropriately.  

 

Improving your chances

In the days before the financial crash, getting a business mortgage was fairly simple. You’d simply take out a self-certification mortgage, meaning you didn’t have to prove your income. Since the Financial Services Authority banned these in 2011, lenders require a detailed financial history – typically two to three years and showing a profit over that time. You can submit your history via the SA302 self-assessment form but to maximise your chances of successfully applying it’s highly recommended that you enlist the services of a chartered accountant. Indeed many mortgage lenders make this prerequisite.

 

What if I don’t have two years of business accounts?

Lenders recognise that not all individuals will have a typical account history. By their very nature businesses can be unpredictable in their early stages and new ventures will have minimal accounts to their name. However, there’s hope yet! Some mortgage lenders will still consider applications if you can prove a track record of regular employment or if you’ve left employment to work as a contractor within the same, or linked, industry. Likewise, some specialist lenders will consider applications with only one year of accounts, albeit at a higher rate. As with all other kinds of borrowing, having a good credit rating will help massively, as will preparing a sizable deposit or/and holding significant equity in a property. Ultimately mortgage policy will vary considerably from lender to lender. Some will be significantly more amenable than others, taking individual circumstances into account. If in doubt it’s always worth getting in touch, as most mortgage brokers will be more than happy to talk to you and explore all options available. Owning a business and home doesn’t have to be mutually exclusive, in fact, it’s becoming easier. Just remember, you are the Captain now.  

 

If you’re a business owner with more questions regarding a mortgage, feel free to get in touch with our friendly team of experts.

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