Getting a mortgage when you work for yourself can seem difficult, but a broker said it didn’t have to be
Many limited company directors are being caught out by a little-known difference in how mortgage lenders assess self-employed income, a mortgage broker has warned. Jamie Elvin, director of Strive Mortgages, which specialises in mortgages for the self-employed and limited company directors, said entrepreneurs wrongly assumed every lender would assess their income in the same way.
Jamie said: “Many business owners deliberately keep their salary and dividends low for tax efficiency, leaving profits within the company. When they then come to apply for a mortgage, the problem is that many lenders will only assess the income you’ve actually drawn when deciding how much they will lend to you. They’re then left disappointed and don’t know that there are other lenders out there who will also take into account their share of the company’s net profit.”
By way of example, Jamie said he recently had a client where the maximum borrowing ranged from around £225,000 with one lender to almost £600,000 with another.
He added: “The difference wasn’t the client’s income or circumstances – it was simply how each lender chose to assess that income.”
Jamie said many directors retain profits to strengthen cash flow, invest back into the business or minimise tax, rather than because they cannot afford to withdraw more.
He added: “It’s one of the biggest misconceptions we see when arranging mortgages for the self-employed. Business owners often think they’ve reached their borrowing limit, when in reality they’ve simply approached a lender whose criteria doesn’t suit their circumstances.”
Jamie said that hitting a perceived borrowing limit could cause business owners to make decisions they may later regret.
He added: “Some business owners then consider increasing their salary or paying themselves larger dividends purely to improve their mortgage affordability. In many cases, that can create an unnecessary tax liability, when the better solution is simply choosing a lender that assesses retained profits as part of the affordability calculation.”
Jamie warned that approaching just one bank could give business owners a completely misleading picture of what they could borrow — and that it’s vital the self-employed know which lenders to approach.
He added: “For limited company directors, lender criteria can vary dramatically. Choosing the right lender can genuinely mean the difference between missing out on your ideal property and being able to buy it, without changing anything about your business or the way you pay yourself.”
