Getting a mortgage when you are an employee is straight forward – 6 months’ payslips, P60 and some bank statements for proof of earnings, but once you are contracting or self-employed, although you are probably earning substantially more, it is proving it that causes the biggest headache. With more hoops to jump through and boxes to tick, here are my top 6 tips. 

Tip #1: Plan Ahead 

Although withdrawing the tax efficient level of salary and dividends (keeping you within the basic rate tax band) may keep those dreaded tax bills low, it may cause you problems proving your income when it comes to your mortgage application. Some lenders will only look at salary and dividends withdrawn, so get advice early. 

Tip #2: Don’t run before you can walk 

Be aware that most lenders like to see two, potentially even three years of accounts/tax returns to consider your application. If you are looking to buy or re-mortgage in the first year or so of contracting/trading you will need to bear this in mind. Or, if you are looking to switch to contracting in the near future, consider whether you should either hold off until the mortgage is under your belt or maybe even bring it forward (if possible) to secure the mortgage using your permanent employment income. 

Tip #3: Are you “self-employed”? – Know the terminology 

If you are the director and shareholder of a limited company, strictly speaking you are an employee of that company – for tax purposes, you are not considered “self-employed”. However, for mortgage purposes, lenders will treat you as “self-employed” if you own at least 25% of business (25% of the shares in the company). 

Tip #4: Keep your accountant in the loop! 

Keeping your accountant in the loop means that they can let you know if any records are needed to bring your accounts in order, be on hand to provide any financial details and also liaise with your lender or mortgage advisor. 
Lenders will most likely need an accountant’s reference as part of the application – this is just a third-party verification of your income. As a client of Effective Accounting, we would complete this for you. If you are not a client, and are just browsing out blog, worth noting that a lender will only accept a reference from a qualified accountant with a practice certificate. 

Tip #5: Lender’s criteria 

Lenders have different criteria that they assess your application on. Some will look at salary and dividends, others may look at your accounting profit i.e. access to dividends and other may look at your contract day rate. Frustratingly, these criteria may give different results on affordability and how much a lender is willing to provide. Be prepared to be confused and baffled! The way forward with this brings me onto Tip #6! 

Tip #6: Get the right help! 

Seek the advice of mortgage advisor with specialist knowledge and experience in securing mortgages for self-employed and contractors. This is vital as it means that they can save you a great deal of time by going direct to the lender that best suit your circumstances. We work closely with a local mortgage advisor, Andre Marcel of Citrus Mortgages. Citrus are Whole of Market brokers who have the skills needed to help you secure your dream home or perfect buy-to-let. 
If you want us to put you in touch with Andre and the team, and to ensure you receive the utmost premium care and attention, please get in touch now. 
Written by: 
Nicola J O'Sullivan -  
Effective Accounting 
Founder | Xero Champion | IR35 Specialist 
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