Mortgages & self employment

[Whathefisgoingon]

Hi All

DP and I are aiming to purchase our first property at the start of next year.

As it stands, we both work part time and our combined income is around £60k. We’ll have a £30k deposit by the time we start looking so as I understand it that would, in theory, allow us to purchase at around £300k.

However, there are a few (potentially serious) problems, and as first time buyers I’ve no idea how much of a problem these could be.

Firstly, DP owns a small business with one other and both are directors of the business and self employed. Due to the nature of the business, it was required to close for many months in 2020 due to Covid. I have seen that self employed applicants need TWO years worth of tax accounts etc, but 2020’s are a complete write off as they were closed or very slow due to Covid, and obviously do not demonstrate accurate earnings at all. 2021 is fine. What happens in this scenario?

As for myself, my basic is OK but I have the ability to earn commission that is usually greater than my basic salary. For example, my basic last month was £1.9k but the commission I took home was in excess of £3k. I know you are asked about bonuses/commissions etc, but how much are they actually taken into account?

And finally, I’ve seen the 5% deposit scheme for first time buyers but we’ve been warned off these by friends & family. We’d love to purchase sooner and would be able to do so if we did it this way, but I’m assuming we wouldn’t be able to until DP tax returns in April next year, anyway? Is that right?

Thanks all!

All of your questions completely depend on the lender. You will need to see a broker as they will know which lenders will maximise your borrowing.
For the self employment, some lenders wont lend without two full years accounts and that will include last last year. If the business is well established and last year was just a blip but they are now back up to speed and can show that, some lenders will take that into consideration.
Your bonuses will be counted with some lenders if they are regular and consistent.

Try Accord
We have a strange mix of self and employed jobs and my credit isn’t perfect (not terrible though). We went via a broker and it was really easy

Talk to a Independent Mortgafe Broker with access to the whole of the market. Professional advice can avoid all the pitfalls. Yes you may well have to pay a fee but good chance it will save you in the long run. They will also be able to advise how viable getting a mortgage is on your self employed accounts far better than MN

Thank you. I’m going to, I’ve actually spoken to someone this morning briefly. I was just curious if anyone had been in a similar situation.

Hi OP,

We are exchanging on our first place this week and were in a similar situation (self employed DH). Definitely get yourself a good broker or IFA - it made such a difference.

Lots of lenders are funny about the SEISS grants - DH delayed claiming one until after the application was in.

You say that he is self employed as well as being a director? I am a bit confused as you refer to both and directors are not self employed. Directors income would generally be wages and dividends. If has has self employed income on top of that, it would be based on the taxable profit. Did he get the SEISS grants for his self employed income?

For your own wages, they would ask for P60 or past 3-6 months payslips.

I have professional links with some IFA's and they said that some companies are allowing SEISS and some aren't.

I recommend speaking to IFA's because they can generally get you deals that aren't always advertised, and look at everything, not just one bank.

£300k might be stretching it a little. The typical multiplier is 4x income so that would be £240k + £30k deposit = £270k.

As with others I'd recommend a broker.

Sorry to resurrect an old thread, but we're in a similar position. Can I ask how it all turned out, @Whathefisgoingon? We've a decent deposit and working with a mortgage broker, but I'm worried about how they calculate self employed income.

FY2019 I earned £5k because I took time off when DS was born. But FY2020 I earned £50k. This year is on track to be similar to last year, but I worry I'll be penalised for not earning much in '19. Bleh!

I work in a brokerage. One years accounts is doable with some lenders, and some will use the most recent. Wrt your income some will also accept commission but you may need to provide the last 2 P60s to show it is consistent. Again it is lender dependent so will definitely depend on them.

I'd have a chat to confirm affordability too, just to make sure that you can borrow 270k.

We're in the process of applying and are both self employed.

A lot of lenders will take the average of the last two years accounts. Most won't take into account the SEISS and we were told that if we claimed the most recent one, to not even bother applying for another 6-12 months.

It sucks.