Understanding self-employment structures for mortgage purposes is fundamental to presenting the case to the lender. Whether it’s a sole trader, limited company directors, limited liability partnership, CIS contractors or day rate contractor working under an umbrella corporation. By working with Home Group we can provide assurance of two things:
- Providing the highest chance of maximum mortgage borrowing by ensuring your total earnings are taken into account
- Experts with working with lenders and relationships with underwriting for contractors maximising success and borrowing potential
Our Home Group Advisers specialise in understanding your self-employed and contractor circumstances and work with lenders to help them understand your structure and income.
Can I get a mortgage as a Day Rate Contractor?
As a self-employed applicant, lenders will require SA302 Tax returns as proof of income. However if you are a ‘day rate contractor’ and have been working with the same business for over 6 months or have experience in working for other companies where you’ve had the contract renewed more than once; mortgage lenders can look to use you ‘day rate’ as the gross income and often this means lenders for criteria purposes will consider you as employed. This can have an impact on max borrowing and potentially a more stream-lined application.
‘Generally’ lenders will review the date rate on a 5 day per week x 48 weeks per annum (taking into account annual leave) therefore if you earn £500 per day x 5 days per week = £2500 per week x 48 weeks = £120,000 per annum income for mortgage purposes.
Can I get a CIS Constractor Mortgage?
Construction Industry Scheme (CIS) is what many subcontractor trades-people use to deduct tax from their regular earnings and make these payments to HMRC. The subcontractors are self-employed but tax is deducted at source and at the end of the year an overall tax return is completed. If you have worked with your current business under CIS for 6 months or more or have experience for a longer period working in this manner; mortgage lenders can consider you as a ‘day rate contractor’ and assess your income for lender criteria purposes on a employed basis assuming you have payslips to proof tax being deducted at source
Can I obtain a mortgage as an IT Contractor under an umbrella company?
As an IT contractor under an umbrella company, lenders will normally want to see ‘day rate contract’ and ‘payslips’. Although your are self-employed if you are working for a reputable umbrella company we can review it on this basis maximising earning potential and not having to use self-employed tax returns.
How will lenders review my income as a Limited Company Director?
As a limited company director there are many ways and means of paying yourself income from the company, often this will depend on what your accountant recommends from a remuneration review. Our role as a Home Group Adviser is to work closely with company accountants to ensure we understand the income and profits of the business to present this in the right manner to the mortgage lender. In some instances we may use straightforward income of salary and dividends and use this total for mortgage purposes. In other cases this may not be the right method is the director is not drawing income in this way and for example via a directors loan and therefore using the company profits or retained profits within the business is the most viable scenario to achieve the level of lending required.
Self-Employed Mortgage Basics
What is an SA302?
An SA302 is a summary document to report on the income that has been declared to HMRC for tax purposes. This is evidence of self-employed earnings declared to HMRC and often what lenders will use to evidence salary, dividends and profit from self-employment
What is a Tax Year Overview?
This is a summary document showing what tax is payable to HMRC or any refunds that are due. Most mortgage lenders require this for self-employed applicants to evidence whether or not there are any outstanding tax payments
What is a Directors Loan?
A directors loan is money being repaid to a director from money already paid into the business. This is not salary, dividend or expenses purely a repayment of money already in the business. There is no personal tax to pay on a directors loan.
What is Retained Profit in a business?
Retained profits in a business is money or profits previously accumulated from business profits. These profits are kept or ‘retained’ in the business and not paid out to shareholders.