Self-Employed Mortgage First Time Buyer

Is there any flexibility in the repayment terms for self-employed individuals who are first-time buyers?

I’ve interpreted this question as asking whether there’s any difference in flexibility for self-employed buyers compared with the employed, and there isn’t. There’s no difference in the repayment term. Whether you’re a first-time buyer who’s self-employed, you’re employed or even a home mover.

Repayment terms are generally based on a maximum age of 75, although that can differ between lenders. So the time from your current age to 75 is usually the longest mortgage term available to you.

What additional fees or costs should I be aware of as a self-employed first-time buyer?

There’s not much difference between being self-employed and employed from a costing point of view. Any fees will be the same for an employed and a self-employed person.

As a first-time buyer, you have a stamp duty allowance on properties up to £300,000. Over that, even first-time buyers are liable for stamp duty. You will have solicitors’ fees and lender arrangement fees, which you can either pay upfront or add to the loan.

There’s possibly going to be a valuation fee, although not always. You will have a survey cost – it’s not essential, but you may want to pay for a survey on the property. Then there are broker fees from our side.

You might have some costs to move your belongings to your new home, and then buildings insurance as well. One thing that applies to the self-employed is that you may need to pay fees to an accountant if you want them to support your mortgage process in some way.

Will I need a guarantor to get a mortgage because I’m self-employed?

No. You don’t need a guarantor just because you’re self-employed. Lenders are perfectly happy to lend to you as long as you meet the income requirements and the case is affordable.

Are there any government schemes available to help self-employed first-time buyers?

Yes. It’s the same as being employed. You’re not at any disadvantage in self-employment. You’d still have access to schemes like the Lifetime ISA, shared ownership, the First Home scheme and more. We’d just do some research to find out exactly which schemes might apply to your circumstances.

Can I use profits or dividends from self-employment as income for a mortgage application?

You can use either, but lenders will assess it differently. Some will want to use your salary and dividends together, and will average that over the last two years.

They’ll want two years’ accounts, generally, although some allow one year. Other lenders will allow you to use your share of net profits left in the business instead of salary and dividends.

What impact does my business structure have on my mortgage application as a first-time buyer? Are there specific requirements for different structures?

The main impact is on how your income is assessed and which documents you need to provide. A sole trader, for example, would provide SA302s and tax year overviews.

If it’s a partnership, you need SA302s, tax year overviews and sometimes your partnership accounts. A limited company director will need SA302s, tax year overviews, and, in most cases, the latest two years of company accounts too.

Can business funds be used for the downpayment on a mortgage for a self-employed first-time buyer?

Technically, yes, it can be done, but only in very specific circumstances. Generally, a lender wants the money to come from your personal savings. Technically, if you’re taking money from a business account, it belongs to the business.

That money could be used, but it would have to be withdrawn correctly from the business first. My advice on that one is to speak to your accountant. It could affect your taxation, so get proper guidance on that.

What happens if I’ve been previously declined for a mortgage as a self-employed first-time buyer?

Being declined for a mortgage is more common than people think. It doesn’t prevent you from getting another mortgage. A lender could decline because they don’t like your income makeup – but a different lender could be completely fine with it.

It’s also about how the case is packaged and sent to the lender – and that’s our job. We present the case to the lender to assess. Clear packaging increases your chance of mortgage acceptance, so reach out to us here at Rockstone, and we can guide you through the process.

How can a mortgage broker help here? Have you got any final thoughts?

A good mortgage broker could be the difference between a decline and acceptance. Lenders all have slightly different criteria, and we can guide you to the most suitable options. We understand what lenders will look for, help you present the case and give you the best chance of mortgage acceptance.

Whether you’re self-employed, employed, a first-time buyer, wanting to remortgage or move home, contact us and we’ll help you.

Key Takeaways:

• Repayment terms and most fees for self-employed first-time buyers are the same as for employed buyers, with terms generally based on a maximum age of 75. The key difference in costs is that self-employed individuals might need to pay accountant fees to support their mortgage application. First-time buyers are eligible for a stamp duty allowance on properties up to £300,000.
• Being self-employed does not automatically require a guarantor. Lenders are willing to lend as long as the applicant meets the income requirements and the case is affordable.
• Lenders assess self-employed income using either salary and dividends (often averaged over the last two years) or the share of net profits left in the business. While two years’ accounts are generally preferred, some lenders allow one year.
• The type of business structure dictates the documentation required. For example, sole traders must provide SA302s and tax year overviews, while limited company directors will typically need SA302s, tax year overviews, and the latest two years of company accounts.
• A good mortgage broker can be the difference between a decline and an acceptance because they understand the slightly different criteria of various lenders. Brokers help present the case clearly to give applicants the best chance of acceptance, particularly if they have been previously declined.