Mortgages for the Self-Employed

[Ossiantoad]

I vaguely recall reading somewhere on here that if you work for a company which you own more that 25% of you are considered to be self-employed for mortgages purposes, can anyone confirm?

Next year my main source of income will be in the form of dividends that my wife and I are about to start taking from a company founded a couple of years back. We have been living without income for a couple of years as we got going but the profits are now starting to flow and we want to plan for a house purchase. My question is, what will a potential mortgagee want to see from us and how long will we need to wait until they look kindly upon an application? All this will affect the conversation I'm about to have with my accountant about the best way to extract funds from the Ltd Co., timing of dividend payments etc.

Thanks in advance.

[Sarnie]

Yes, for mortgage purposes, if you own more than circa 25% of a Limited Company they will class you as self employed.

Which will clash with what your accountant tells you, as he will tell you that you are an employee of your Limited company.

A lender will want to see a minimum of two years figures, some will accept one year now but expect high rates & fees and to need a large deposit. Some will ask for three years. Most lenders will take an average figure of your salary & dividends across the two or three year period.

A lender will treat the total of your salary and dividends in the same way as a PAYE salary. So if a lenders offers 4x income, a person with a £25k salary and another with a £10k salary plus £15k dividends, would both be able to borrow £100k.

Try where possible to have declining figures, lenders don't like that.

Hope that helps?

[Ossiantoad]

Thanks Sarnie, that's very helpful.

You mention that some lenders might take one year's earnings but would want a large deposit and would charge high rates. If I wanted to buy a property for £500k in 12 months time, how much of deposit would I need and how much would need to pay myself to qualify for the necessary mortgage? What rates might I be looking at (I realize that you cannot predict future interest rates with any certainty).

[Sarnie]

Ossiantoad said:

Thanks Sarnie, that's very helpful.

You mention that some lenders might take one year's earnings but would want a large deposit and would charge high rates. If I wanted to buy a property for £500k in 12 months time, how much of deposit would I need and how much would need to pay myself to qualify for the necessary mortgage? What rates might I be looking at (I realize that you cannot predict future interest rates with any certainty).

At least a 20% deposit and you'd need to be earning circa £100k and rates would currently be around 5%....

[Ossiantoad]

Thanks. I know what I need to do!