By Sarah Mascot CeMAP, Mortgage Advisor at Clever Mortgages
One of the many misconceptions held by consumers when trying to buy a house is that it is almost impossible for those that are self-employed or in receipt of multiple income streams to secure a mortgage.
Many customers come to us having been refused borrowing by their high street lender convinced that their self-employed or complex income stream means taking out a mortgage is firmly off the table. This simply isn’t true.
There are a number of reasons why an application may be declined and just because a borrower has been unsuccessful with one mortgage lender does not mean that they cannot secure a mortgage with another.
Specialised Solutions for Complex Incomes
There are many lenders in the mortgage market willing to cater to borrowers with “non-traditional” and complex income streams and the mortgages available to them are exactly the same as those on offer to people in salaried positions.
Admittedly, there are a few additional factors that those with complex income may need to consider when applying for a mortgage, which is why using a specialist mortgage broker can prove beneficial.
Specialist mortgage brokers can have access to the entire mortgage market and will carry out a detailed fact find to ensure they have all the information required to secure the best and most suitable outcome for your individual circumstances.
Understanding Complex Income
To know whether or not you fall into the complex income bracket, it is important to understand how complex income is defined. This will also help you understand what documents you may need when it comes to applying for a mortgage.
Generally, any customer with a “non-standard” salary such as the self-employed, contract workers or those with multiple jobs and sources of income will fall into this category. It can also include those employed workers who receive commission, bonuses and other workplace benefits.
Financial Proofs for Self-Employed Applicants
When it comes to applying for a mortgage, most lenders will require a minimum of one year trading for all self-employed applicants. This means that if you are a sole trader, you will need to have submitted your first year’s tax return and have had those figures back from HMRC before you apply for a mortgage.
If you have set up a limited company, you will also need to have had your company accounts filed and up-to-date before applying for a mortgage. You may also be asked to submit bank statements and projected growth and income figures for the business, so it is important to speak to your accountant to ensure your books are in order.
Contract workers such as those working in IT or CIS workers in the construction industry will generally need to supply pay slips for the last three, six and 12 months as well as previous tax returns as proof of income.
This will enable a broker to get a full picture of your business accounts and earnings over the last few years. This allows them to use the information provided to maximise your borrowing capacity for affordability purposes.
For example, if your take home pay is £50,000 a year but you have £150,000 in retained profit within the business, a broker may be able to use this profit to maximise the borrowing capacity on the mortgage application by using the higher figure for affordability purposes.
Planning Ahead for Mortgage Success
If you are planning to remortgage or even take out a mortgage within the next 12 months, it is also worth speaking to your accountant a year in advance to ensure the way in which your accounts are structured will not have a negative impact on your mortgage application.
Your accountant can then work with you to ensure your business income and profit are set up to maximise your borrowing capacity, placing you in a solid financial position when it comes to applying for a mortgage.
Dispelling the myths associated with mortgages for those with complex income streams is crucial as there are plenty of mortgage options available to those who fall into this borrowing category.
Enlisting the help of a specialist mortgage broker with a knowledge and understanding of the mortgage market will stand you in good stead for a successful application and help set you on the road to homeownership.