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Self-Employed New Build
Paul Holland explains how the new build mortgage process works if you are self-employed.Can I get a mortgage on a new build property if I’m self-employed? Is it hard to get a mortgage on a new build if you’re self-employed?
As a self-employed person, yes, you can get a mortgage on a new build. You may find that some lenders restrict the Loan to Value – so the required percentage of the purchase price as a deposit could potentially be larger. But being self-employed is not a deal breaker for new build mortgages.
A higher Loan to Value would be 90% or 95% loans where you have a 5% or 10 % deposit, in which case you’re potentially left with a smaller pool of lenders to look at.
The only other possible hardship is because of self-employment. The property type isn’t really the issue. In isolation, it’s not going to be the property or the fact that it’s a new build. Simply being self-employed can sometimes make it a little bit more difficult to secure a mortgage.
Can I get a mortgage on a new build with only one year of self-employment?
What I said earlier about having fewer lenders at your disposal really comes into play when you’re working with one set of accounts. Most lenders require two, and in some instances, even three years worth of trading before they will happily accept self-employed applicants.
If you’re bringing one set of accounts to the table, you leave yourself with just a handful of ‘prime’ lenders. You’re restricting it quite a lot with one set of accounts. However, there are potentially 10 to 15 specialist lenders that are happy with that – although their rates and fees are going to be higher and the turnaround times are longer.
In this instance, what you really want to be doing is strengthening the remainder of the case as best you can. If you can have a larger deposit, focus on that. Get all your documents in order and everything easily accessible – that’s really going to strengthen your chances and make it as easy as possible.
I’d suggest chatting things through with your accountant, ensuring everything looks tidy from an HMRC perspective, and checking if they are happy to give the lender a projection for the future year.
If a lender doesn’t have any long-term history, they may ask your accountant how things look on a projected basis. That will go a long way to help the underwriter see the mortgage will be sustainable and affordable.
Also, if you’ve got a track record in your industry, that’s helpful. If you’ve hopped from one industry into a completely different one, you’ve only got one year’s records and you can’t get a projected figure, it’s going to be difficult for the underwriter to build a case.
My most recent year’s earnings were less than my average. Will this affect my new build mortgage application?
If your self-employed income is on a downward trend, the best outcome is that the lender will use the latest year’s figure for the affordability calculator.
Let’s say your profit went down from £50K to £40K in the latest year. They’re not going to average that out, they will use the £40K for the calculator – but it’s still good.
Obviously, if there’s a huge disparity and downward trend, there could be more questions to understand what’s behind those big differences. It’s not the end of the world, if your profit’s on a downward trend – it’s quite common.
You might have had a year where you had much bigger expenses or you didn’t work as much because you had a child. It’s all about the background information and the justification behind the difference in figures.
How much can you borrow as a self-employed person? How many times my salary can I borrow for a mortgage on a new build property?
It still surprises me that people think that they can just multiply their income and get a loan amount, but it’s not really that straightforward anymore.
There is usually a principle that each lender applies to your income to kickstart the maximum borrowing amount. But two people with a £50,000 salary could be in very different positions once they’ve paid all their commitments and expenditure. So that’s not a very good way to gauge an affordable loan from a lender’s perspective.
Lenders will chip away at that maximum loan based on your individual circumstances. They may offer multiples of anywhere from four to seven times your salary. But how they look at individual expenditure and reduce that loan will differ across the board.
If you just applied a lender’s multiple to your income, I’d bet my bottom dollar that once you go through an affordability calculator with them, it’s never going to end up at that figure.
So chat with someone who can actually do the affordability calculation and show you the least generous lender all the way up to the most generous, based on your full situation. Then you will know exactly where you stand.
What mortgage deposit do I need if I’m self-employed? Can I use my self-employment grant as a deposit towards a new build property?
There will be options for self-employed applicants to buy new build properties with as little as 5% deposit. If you can get to 10% or even 15%, it’s best to aim for that.
But if you’ve only got 5% and no options to increase that, have a chat with a broker – we will take a view on your situation and let you know your options at that stage.
With regards to the self-employed grant side of things, we’re probably getting into muddy water there. I wouldn’t say yes or no – it’s on a case-by-case basis. Again, go to a broker with your specific situation and we will let you know exactly where you stand.
It’s a difficult one to answer, but it will be specifically down to your set of circumstances. So get on the phone to someone who can figure that out for you.
How will you be assessed as a self-employed mortgage applicant looking to purchase a new build property?
Again, the new build is not specifically going to cause a problem. We’ve touched on the fact that you might need a larger deposit, depending on who you’re going with. You might well be left with a smaller pool of lenders.
But once you’ve got that pool of lenders, you’ll be treated the same as any other applicant, regardless of whether or not it’s a new build. You’re going to need to provide the required evidence and go through an affordability calculation. A survey will be instructed on the property to make sure the lender is happy with not only you and your income, but also with the security – which is the house you’re looking to buy.
How will a lender calculate my self-employed mortgage earnings? How do I prove my income?
From a self-employment point of view, that naturally comes with submitting tax returns to HMRC. You do that normally on a personal basis, from April to April, and that generates what’s called an SA302, also known as a tax calculation or a tax computation.
I refer to that as a bill from HMRC. It breaks down all your income and gives you a tax bill. Once you pay your tax, you get a tax year overview which is effectively a receipt. It’s like a pay slip for a self-employed person, and you only get it once a year instead of every month or every week.
That’s the main income evidence for a self-employed applicant. If you are a limited company, you’re viewed as a self-employed applicant as well, and you will need company accounts. Not only do you need to provide your income proof, you need to show income for the limited company.
You’re then going to follow that up with personal and company bank statements, potentially, and ID verification via a passport or driving licence. We also need deposit proof and anything else that the underwriter might throw at you. Those are the main things you’re going to need to figure out where you stand.
You’ve demonstrated how a mortgage broker can help, but have you got anything else to add?
If you didn’t know the answer to any of those questions, a mortgage broker will be able to specifically break that down for you based on your set of individual circumstances.
What people might not realise is that most mortgage questions can be ambiguous. It’s not because I don’t know the answer, it’s because it will vary depending on the applicant. It’s a bit of a minefield.
Make sure you’re doing things in the right order. When you’re looking to buy a house, start by working out whether it’s affordable. You do that by picking up the phone and speaking to someone who knows what they’re talking about.
If you’re self-employed, find a broker with that expertise rather than just a generic broker that does vanilla cases. It’s like the difference between going to your GP and going to a consultant. A GP is going to know a little bit about everything. Your consultant is going to know a lot about one area.
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