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Anyone who has tried to get a mortgage while being self-employed probably won’t look back fondly on the memory.
Way more paperwork, from tax returns to bank statements dating back several years, can be required.
And then there’s the fact most accountants will have tried down the years to lower your tax liability, claiming expenses that lower your profit and adding lump sums to pension pots.
But that profit is exactly the thing mortgage providers will be looking at in determining how much they’ll lend you.
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“Many self-employed borrowers want to beat the tax man and the mortgage man at the same time but this is impossible,” broker Mike Staton told the Money blog.
Here’s some advice from mortgage experts…
Cut out the creative accounting before applying
“Accountants often use creative accounting to reduce tax liabilities, but this can lower your reported income, impacting mortgage affordability. Lower taxes mean lower income,” says mortgage broker Harps Garcha.
How far back will you need documentation?
Non-PAYE applicants should plan ahead, as lenders often review income from the past one or two years, unlike PAYE, which focuses on the last three to six months.
David Stirling, a financial adviser at Mint Mortgages and Protection, says: “For a self-employed borrower we would advise trying to get a couple of strong years’ accounts, preferably with little variation.
“A large increase or decrease in the most recent year will lead to extra questions from the lender to assess plausibility of the application, with an often unpredictable affordability calculation.”
Be aware of what’s being looked at
If your income is going down, lenders will focus on your most recent statements, says Adam Stiles, managing director at Helix Financial Partners.
“By income, we mean profit from self-employment if a…
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