Mortgages for the self-employed

Malcolm Davidson

October 2, 2019

Malcolm Davidson (pictured) is director at UK Moneyman

It’s the call from a new client we all get and possibly dread: “I’m self-employed and I need a mortgage. The thing is, well, you know what it’s like when you’re self-employed mate…..”. Yes, we know very well what you mean!

Our employed clients don’t get a choice about how much tax they pay, it’s deducted at source and the affordability assessment for a mortgage is straightforward. However, it sometimes feels like some self-employed applicants seem to want to have their cake and eat it.

The thing is though if you want to borrow some money, you’re going to have to start paying some tax!

Maybe I’m being a little harsh.

Can any of us truly say we pay more tax than we need to? We all need to contribute to the government coffers so that our great nation can function (MPs’ expenses don’t pay themselves you know) but no one volunteers to pay more than their fair share.

In the real world, many self-employed customers only speak with their accountants once a year. Part of their tax adviser’s role is to maximise any tax advantages available, albeit some are perhaps more aggressive than others. The self-employed aren’t always thinking years ahead about applying for a mortgage and usually take the advice of their accountant to minimise their tax liability.

We end up as brokers in familiar territory: we want the declared salary and dividend to be as high as possible to obtain the mortgage, but the customer has followed their accountant’s advice to the letter and ends up disappointed they can’t buy the home they’d like.

Rather than being dismissive of their enquiry, we should always aim to be more understanding and educate the self-employed about what they can be doing to increase their chances of getting a mortgage next time. As you know, some lenders will work from the latest year’s accounts, so if the client is happy to swallow the tax liability pill then at least they won’t necessarily have to wait two years before they can re-apply.

It’s within our remit to advise the client on what they can be doing to give themselves the best possible chance of success when it comes to a future application. Clients appreciate open and honest advice and done well you are “paying it forward” to earn yourself the case when the customer is in a better position.

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