It can be difficult enough for a first time buyer to get on to the property ladder but when you're new to contracting it can unfortunately make the process even more complex, which is why it's important to seek specialist advice from financial advisors that know and understand your industry in order to avoid disappointment.
Although most lenders are prepared to offer mortgages to contractors who work through their own limited company and are well established, the majority of lenders will only look at and consider your application if you have a full set of accounts for the previous two years at least. Very few lenders are prepared to lend if you have been working in this way for only a year.
Under tighter lending rules introduced by the Mortgage Market Review in 2014, mortgage applicants are required to show bank statements and provide details of their credit commitments, debt repayments and outgoings including childcare costs, day to day expenses, any hire purchase agreements and pension contributions.
The difficulty that limited company contractors face is that different lenders assess income in different ways, particularly when you're working through a limited company.
Some lenders look at salary plus dividends when assessing income of limited companies, whilst others, may look at the net profit of the business, which can prove to be more beneficial for an applicant.
When it comes to paperwork, some lenders will be prepared to accept accounts from your accountant, while others will want proof of your income from HM Revenue & Customs (HMRC).
Many lenders therefore now want to see your SA302 - this is the self-assessment form that shows how much income you declared to HMRC and how much tax you paid on that. Lenders often regard this as the true reflection of what you earned. In either case - whether a limited company or sole trader - most lenders like to see two or even three years of accounts and SA302s.
Some lenders will take the most recent year as your income, while others take an average of the accounts you provide over two or three years. Problems could arise if your accounts show that there is a downwards trend in your earnings or profits.
If you have formal contracts in place stating how much you will be paid for the work, and for how long, you might be able to avoid supplying several years’ worth of accounts and this is where Haven can help.
As the preferred supplier of financial services to PayStream, we operate a specialist 'Mortgage desk' which helps contractors source and secure mortgages by assessing each contractors individual circumstance to help find the mortgage that’s right for them.
For more information please email info@havengsl.com or call on 0161 923 0009, where our advisers would be happy to help with your enquiries.