As all self-employed people will be aware, getting a mortgage with a non-standard income has always been more difficult than securing a loan as an employee. If you work for yourself, you’ll need to provide a lot more documentation when applying for a mortgage. Lenders will want to see proof that your venture is profitable and that you’re likely to continue to make money in the future.
Moving between two types of non-standard income can make things even more complicated. Going from being a sole trader to the director of a limited company, although potentially good for your finances in the long term, could make it harder for you to secure a loan. If you’re currently considering launching an limited company, or if you’re recently taken the plunge and become a director, here are a few things to consider when applying for your mortgage.
Getting a mortgage as a sole trader
If you’ve been working as a sole trader for more than two years, and if your business is profitable, getting a mortgage shouldn’t be too difficult. As @WhichUK says:
“If you can show a consistent or increasing profit over a number of years, this will help your application, as lenders look at average profits over a period of time to assess your risk profile.”
As long as you have the right documentation and the necessary income, you should be able to find a mortgage provider who will approve your loan.
Getting a mortgage as the director of an Ltd company
As a director of an limited company, your income may well be a little more complex. If you own less than 20% of the company, you’ll generally be treated as an employee for tax purposes and most mortgage providers will also view your income as if you were employed by the business.
On the other hand, if you own more than 20% of the business, mortgage providers will see you as self-employed. This means that like other self-employed workers, you’ll generally need at least two years of accounts before you can apply for a loan.
Moving from a sole trader to an Ltd company
If you’re going from being a sole trader to director of a limited company, you’ll probably need to wait two years before applying for a mortgage. Even if you own less than 20% of the business and are therefore an employee, most lenders will still be more likely to offer you a loan if you’ve been in your new role for at least a few months.
If you have a non-standard income, or if you’re thinking about changing your career, or the way you’re employed, getting expert advice before you apply for a mortgage is essential. To find out more or to speak to one of the members of our team about your mortgage application, get in touch today.
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Written by: Editorial Team