Introduction:
Understanding Affordability:
Key Factors in Affordability Calculations:
- Income Evidence: When calculating affordability, lenders require evidence of income. For sole traders, this usually means net profit, while for limited company directors, it can include both salary and dividends. Importantly, some lenders consider a director’s share of net profits, offering a more holistic view of their income. To substantiate your earnings, you may need to provide Tax Calculations (SA302s) and Tax Year Overviews and/or full accounts prepared by a qualified accountant covering the last two or three years. However, some lenders can use one year’s income proofs for new businesses.
- Consistency of Earnings: Stability and growth in income are crucial. Lenders will assess how your income has fluctuated over the years to determine if you can sustain mortgage repayments.
- Debt-to-Income Ratio: This ratio compares your monthly debt obligations to your income, or with some lenders, the total debt compared against your annual income. A lower ratio suggests you have more disposable income to afford a mortgage.
- Credit Score: Although not directly tied to income, a good credit score can positively impact overall assessments. However, each lender has its own credit scoring, which takes various factors into account.
Enhancing Your Mortgage Affordability:
- Maintain Clear and Comprehensive Financial Records: Ensure your accounts are up-to-date and reflect your income level.
- Reduce Unnecessary Expenses: Lowering your business expenses can increase your net profit, enhancing your mortgage affordability.
- Pay Off Existing Debts: Lowering your debt-to-income ratio can significantly affect how lenders view your application.
- Consult a Mortgage Advisor: A professional can offer invaluable advice on how to present your finances and which lenders are more amenable to self-employed and business owner applicants.
Conclusion:
Embrace the process with confidence, knowing that each step you take brings you closer to the door of your new dream home.
Navigating the mortgage landscape as a self-employed individual or business owner can seem daunting, but it doesn’t have to be a journey you embark on alone. At RNR Mortgages, we pride ourselves on our specialisation in mortgages for self-employed professionals and business owners.
Our expertise lies in understanding the unique financial nuances that accompany self-employment and business owners and leveraging this knowledge to your advantage.
We are committed to making your dream home move not just a possibility but a reality. With RNR Mortgages, you gain a partner who stands by your side, ready to navigate the complexities of mortgage applications, ensuring a smooth path towards securing your new dream home.
If we can’t help now, then we can develop a strategic plan with clear milestones, whether that’s six months, 12 months, 18 months, or two years down the line. Our goal is to turn the ‘not now’ into an actionable timeline, leading to the moment when you can confidently take the keys to your new home.
