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Self-Employed Net Profit Mortgages

How to get a self-employed net profit mortgage and where to get the right advice on these products.

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By Pete Mugleston  | Mortgage Advisor Pete has been a mortgage advisor for over 10 years, and is regularly cited in both trade and national press.

Updated: 3rd December 2019 *

Getting a mortgage when you’re self-employed is a common concern and it’s one that we’re asked about a lot. While lenders tend to be more cautious of giving loans when you work for yourself, most will give them in the right circumstances.

A net profit mortgage is one way in which self-employed people can get on the property ladder and in this article we’ll explain what’s involved by covering the following topics:

If there are any specific questions you have about this topic, or would like advice that’s tailored to your own circumstances, give us a call on 0808 189 2301 or make an enquiry here and we’ll put you in contact with the mortgage experts we work with, who will be happy to help.

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What is a net profit mortgage?

This is a mortgage that’s based on the net profit of your business, whether you’re a sole trader or a company director. Lenders take two approaches; some will consider this figure before tax and some will consider profit after tax.

As a result the type of mortgage that’s available to you will vary, depending on the lender. If one says no to a mortgage that’s based on post-tax profits, you may find another lender says yes, so it’s important to shop around when you’re getting quotes, but you don’t need to do the legwork yourself! A mortgage broker with experience in net profit mortgages could save you time, as they’ll be able to recommend the best lender for you, based on your own situation.

If you need help finding one, give us a call or make an enquiry here and we’ll put you in touch with one of the experts that we work with.

Who is eligible to apply for a self-employed mortgage based on net profit?

A net profit mortgage is available to anyone who has their own business and therefore generates an income, which is then split into their expenses and the profits that are left over. It applies to those who are:

You’ll also need to meet the requirements of the lender which is usually the same eligibility criteria as if you’re applying for any other type of mortgage. Considerations will include:

What are the differences for sole traders and company directors?

How a lender calculates your profits and how much they’re willing to lend you may vary according to your self-employed status, as explained below:

Net profit mortgages for sole traders

Lenders will consider if there’s been any variance in your profit levels. If, for example, they can see that you profits are up one year from the previous year they may use that figure, but if your profits have gone down, it will lower the profit average and this could affect how much they’re willing to offer. 

There are some lenders who won’t offer you a mortgage if your net profits decline by a significant figure like 20%. On the other hand there are some lenders who don’t look at changes in profit and may only consider your most recent accounts.

Net profit mortgages for company directors

If you’re the director of a company, lenders will consider what you withdraw as a salary and dividends and use that as the basis for what they can offer you. Some will also consider adding in a share of the net profits that are left which could mean that you can borrow more than just your salary and dividends.

How much deposit do you need for a net profit mortgage?

Every lender should assess a mortgage application individually, so the deposit you’ll need will vary according to your own circumstances and the level of risk. The lowest deposits are applicable when you have a good credit score and have been trading as self-employed for a number of years, proving you have a stable income.

The more deposit you can put down, however, the better the mortgage rate you’ll get from most lenders. A higher deposit is favourable because it means a low LTV (loan-to-value) ratio. If you can put down 15% you’ll be offered a good mortgage rate, any more than that and you’ll be offered some of the best rates available. 

Should I use a net profit mortgage calculator to work this out?

You can use a net profit mortgage calculator, available on lenders’ websites and other financial hubs, to find out how much deposit is needed for how much you want to borrow.

But keep in mind that these online tools will only give you a rough indication of these things and aren’t tailored to your individual profile. For bespoke calculations, make an enquiry here to speak with an expert, whole-of-market broker.

How much can you borrow for a net profit mortgage?

How much a lender is willing to lend you will vary but there are factors that they’ll consider. For example, the higher the loan you want, the more solid accounting evidence you’ll need to show. So if you’d like a mortgage for £500,000, the lender may expect to see your profits and expenditure for the last two to three years which if you’ve been trading for less than a year won’t yet be available to you.

Some lenders may, in addition, ask to see evidence of any future projects you’re working on to give them assurance of your future income.

Once the lender is satisfied that you’ve proven your earnings, the mortgage amount they offer you will be based on a multiple of your income. Most lenders offer x4.5, some x5 and a few x6

How do you apply for a net profit mortgage?

The best way to kick off your application is by seeking advice from a whole-of-market broker, like the ones we work with. That way, you will have access to bespoke advice and all of the best deals that you qualify for.

Before you make an enquiry, it will be useful for you to know exactly what the application process entails and what you will need to provide the lender with. Every mortgage provider will have a process in place for how you can apply for a mortgage, based on the following:

Your affordability

You’ll need to prove that you can afford to pay back your mortgage by showing the lender evidence of your net profit. They will usually expect to see a copy of your tax return, also known as an SA302 which you can download online by logging onto the HMRC website and accessing your account details. 

Some lenders will accept one year of accounts while others may request them for the last three years. If your business is a new venture, you may need to wait to accrue enough accounts before a lender is willing to offer you a loan.

Can you get a net profit mortgage with bad credit?

If you’re applying for any kind of home loan and have bad or poor credit then it’s still possible to apply for a mortgage, but you’ll need to prove you’re in a position to pay back the loan and some lenders may ask for a higher deposit; potentially as much as 20%.

That said, having bad credit doesn’t mean it’s impossible to find a favourable deal - with whole-of-market advice it could be possible.

Would a net profit mortgage be suitable for a buy-to-let property?

As long as you meet the specified lender criteria to purchase a buy-to-let property then you should be able to purchase one, even if you’re self-employed. You can find out more about buy-to-let properties for the self-employed in our guide here.  

Why it’s good to speak to a net profit mortgages expert

Everyone’s circumstances are different which is why you can’t assume that other people’s experiences will be similar to your own. The only way to get the full picture on what type of mortgage is possible for you is to speak to a mortgage advisor who is experienced in what’s involved in net profit for mortgages.

So, if you have questions about self-employed net profit mortgages and want to speak to an expert for the right advice, call Online Mortgage Advisor today on 0808 189 2301 or make an enquiry here.

Then sit back and let us do all the hard work in finding the broker with the right expertise for your circumstances.  We don’t charge a fee and there’s absolutely no obligation or marks on your credit rating.

Updated: 3rd December 2019
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FCA disclaimer

*Based on our research, the content contained in this article is accurate as of most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The info on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs. Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

Find out more about self employed mortgages

Self Employed Mortgages