Mortgage Guide for UK Business Owners

Starting a business is a triumph, but when it comes to securing a mortgage, the complexities and unique challenges can be daunting. Lenders scrutinize business owners, demanding meticulous documentation and a thorough understanding of income patterns.

In this guide, we'll delve into the intricacies of eligibility, the evolving mortgage landscape, and actionable steps to increase your chances of securing a mortgage deal that suits your needs.

The Challenge of Getting a Mortgage as a Business Owner

Starting your own business is an achievement, and obtaining a mortgage as a business owner or being self-employed adds complexity.

Lenders scrutinize business owners due to the potential volatility of self-employment income, demanding detailed income statements and business records. The mortgage application process requires meticulous preparation.

Determining Your Eligibility

1. Income Verification As a business owner, income verification is crucial. Lenders may ask for:

   • A minimum of the last three years’ Accounts for your business, certified by an Accountant where appropriate.
   • Copies of personal bank statements covering a minimum of the last six months.
   • A minimum of the last two years SA302’s and overviews.
   • Specialist mortgage brokers, like Boon Brokers, can assist in navigating the complexities of income verification.

2. Credit Requirements Creditworthiness plays a pivotal role. Aim for a credit score above 600, with scores of 700 or above unlocking more favorable terms. Timely bill payments, debt reduction, and vigilant credit report monitoring enhance creditworthiness.

3. Legal Status of Your Business Lenders assess the legal status of your business to gauge stability. Whether you're a sole trader, part of a partnership, or a director of a limited company, understanding your business's legal structure is vital. Prepare necessary documentation based on your business type.

4. Trading Duration and Deposit In most cases, you need a minimum of 12 months of trading to get a mortgage as a business owner. A minimum 5% cash deposit is required, similar to other buyers. However, a larger deposit of 15% or more grants access to a fuller range of specialist lenders.

Researching Lender Options

Explore lender options after assessing eligibility and preparing documentation. While high-street banks are popular, specialist lenders like Kensington Mortgages or Precise Mortgages may provide more tailored solutions.

Mortgage brokers, especially those with access to the whole market like Boon Brokers, can be instrumental in finding suitable mortgage options.

The Evolving Mortgage Landscape

Business owners can sometimes find it difficult to get a mortgage. However, with around 5.5 million small businesses in the UK at the start of 2021, lenders are increasingly open to offering mortgages to both the self-employed and company owners.

Specialist lenders may be able to help if you don't meet the requirements of more mainstream mortgage providers such as high street banks.

Mortgages for the Self-Employed

If you are self-employed, how much you can borrow depends on how large a deposit you can provide and what your income is. Lenders usually consider your net, after-tax profits as your income.

Most lenders will want to see two to three years of tax returns as evidence, and some may accept just a single year's accounts. 'Self-certification' mortgages, where the self-employed could state their income without needing to prove it, are no longer available.

Lenders also check that the mortgage will be affordable, so recent bank statements may be required to get a picture of your main personal and business expenses.

Mortgages for Company Directors

If your business trades as a company, lenders generally take into account a combination of salary and dividends in terms of how large a mortgage they might offer you.

However, retained profits may not be considered by many lenders. If the amount you want to borrow relies on these retained profits, you may need to turn to a specialist lender for your mortgage.

Help Finding a Mortgage as a Business Owner

Like any borrower, it's worth shopping around to find mortgages available for your particular circumstances. You can do this yourself or get advice from a mortgage broker. A broker can be particularly helpful if:

• You have a poor credit rating, limited credit history, or record of bad debts.
• Your business is a new start-up or has recently changed form.
• Your earnings are volatile, or you have made an annual loss within the last few years.
• You want to borrow a large amount.
• Profits have grown significantly, and you want a mortgage based on your latest annual profits.
• Begin the Mortgage Application Process

With eligibility confirmed and potential lenders identified, the mortgage application journey begins. The process involves document compilation, completing the application form, anticipating the lender's evaluation, property survey and valuation, receiving a mortgage offer, engaging a solicitor or conveyancer, and finally, completion.

Explore more about mortgage affordability in our comprehensive guide on Mortgage Affordability: How Much Can You Borrow in the UK , where we delve into the intricacies and actionable steps

Special Considerations

1 . Business Growth If your business is growing, support your application with an explanation of why you believe a higher income will be sustainable. Specialist lenders may be necessary to consider future earnings, with a mortgage broker guiding you to the best lenders and presenting your application effectively.

2 . Recent Change in Business Legal Status Changing your business's legal status may complicate the application. If you lack a full year's trading under the new legal status, lenders may treat it as a new business. Specialist lenders can be more flexible, considering the operation under the previous legal status as evidence of earning potential.

Remortgaging as a Business Owner

The primary distinction between a commercial remortgage and a homebuyer remortgage lies in the fact that commercial remortgages are exclusively applicable to loans secured by non-residential real estate.

In contrast to the more standardized homebuyer mortgages, commercial mortgages are specifically customized to accommodate diverse commercial property values and the business requirements of the tenant.

Remortgaging as a business owner follows similar steps to applying for a new mortgage. Stick with the same lender for a quicker process or be prepared for a lengthier one if switching lenders.

Tips for Securing a Mortgage

Boosting your likelihood of mortgage approval while self-employed involves various strategic measures. Consider saving diligently for a substantial deposit and assess your credit score.

Rectify any errors in your credit report and ensure you're on the electoral roll. Be cautious about property choices, steering clear of certain types like flats above commercial spaces or unconventional buildings, as these might pose challenges in securing loans.

Seeking guidance from a mortgage broker and exploring options with specialist lenders are additional steps to enhance your mortgage prospects.

FAQs - Updated Key Facts

Navigating the mortgage process as a business owner involves understanding key aspects to ensure a smooth application. Here are some crucial FAQs and updated key facts to guide you:

• Income Documents: Provide business bank statements, tax returns, and financial statements for income verification.
• Credit Score: A higher credit score improves mortgage terms and rates, showcasing financial responsibility.
• Specialist Lenders: Yes, there are lenders specializing in mortgages for business owners, offering flexible income verification.
• Role of a Mortgage Broker: Brokers act as intermediaries, offering access to a wide range of lenders and facilitating the mortgage application process.
• Choosing a Lender: Consider interest rates, repayment terms, fees, customer service, and experience with business owners.

Conclusion

Navigating the intricacies of getting a mortgage as a business owner requires meticulous preparation and a deep understanding of the lending landscape.

With careful documentation and a strategic approach, business owners can successfully secure a mortgage tailored to their unique circumstances. If I can do it, so can you!