How to get a mortgage if you run your own business

Man in a white shirt handing a woman keys to a house with a house in the background

If your business profit is substantially more than your dividend income and salary, it can be hard to obtain a mortgage as a business owner

Lenders typically assess just your dividend income plus your salary to calculate whether you can afford a mortgage. If you choose to keep money in your business rather than take out dividends, it can have a huge impact on your borrowing ability.

The main high street lenders still shy away from retained profit mortgages, but thankfully this isn’t the case with all lenders. There has been a gradual increase in the number of financiers willing to look at retained profits on which to base a mortgage offering.

However, these can often be hard to find, with mostly smaller lenders offering these riskier mortgages.

Tax savvy entrepreneurs shouldn't be penalised for leaving money in their business, and the same goes for small business owners who want to protect themselves in case of any unexpected bills.

The rise of start-ups and the self-employed

The employment and jobs climate is changing and the number of businesses in the UK has grown steadily with 5.6 million small business in the UK at the start of 2018 (2.2 million more businesses than 2000). Other positive news: fewer start-ups are going bust, which means it's a buoyant time for entrepreneurs; with that kind of security, you can start planning for your future.

If you're one of these start-ups wanting to invest in property either as a way to build your revenue or just to live in, how can you improve your chances of being accepted with perhaps just one year's accounts?

Get the right mortgage advice

Entrepreneurial spirit shouldn't be dampened with mortgage refusals due to lack of accounts evidence.

Luckily, lenders have started to relax their strict rules on account history mortgages - mainly due to the Mortgage Market Review in 2014.

More lenders are reducing the minimum accounts term from three years to just one, so if you're just starting out, have a decent deposit and proof of earnings as audited by an accountant, you're on the right road to finding a mortgage on the property of your dreams.

However, before you start trying to find self-employed mortgages yourself, it's worth having a chat with an independent adviser who can help you navigate the hidden world of lenders. It may be that the best deals aren't those instantly visible to you, or the one you have your heart set on may have specific criteria that you don't fit into.

What's positive is that with start-ups becoming a superpower in the UK, lenders will have to start being more flexible to address the changing needs of the self-employed population.

Copyright © 2017 Pete Mugleston, managing director of Online Mortgage Advisor.

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