Mortgages, both now and in the past, have required affordability checks. For the self employed your income will typically be assessed based on what your tax year overviews and tax calculations show.
Historically when the old self cert mortgages were still a thing, you could effectively make a statement to say you were earning ‘X’ amount and that would be deemed sufficient, quite staggering really when you think about it. It would be fair to say that people may have over exaggerated their income figures previously. Now self cert mortgages are a thing of the past what tends to come up as a stumbling block for many self employed is that their incomes are too low.
I need to stress here that I am not implying self employed individuals are taking part in any illicit or illegal tax avoidance measures but the aim of many self employed people is to pay as minimal tax as legally possible. This is where accountants and tax advisers come in, they are great at this function and help out the self employed no end.
What is great for paying as little tax as possible isn’t always great for getting a mortgage. What we typically see is a self employed person who has low earnings on their tax year overviews and tax calculations, usually due to the expenses claimed, come to try get a mortgage only to find that what they earn not be deemed sufficient from a lenders affordability point of view.
Now for all intensive purposes they have enough income to have the standard of living they want and are extremely happy, however even though this may well be the case the rigorous checks put in place by mortgage lenders often leave self employed individuals not being able to evidence their affordability.
This may be lenders and their way of evidencing income possibly being too comprehensive and not flexible enough for the self employed, however what I do think is happening is that accountants are simply just too good at their jobs.
If you are planning on looking for a mortgage any time soon it is worth booking an appointment with an independent financial adviser who can discuss with you your options.
Daniel Brown, BSc (Hons), DipPFS, Cert SMP
25th November 2019