The problem is that self-employed workers often find that their circumstances don’t fit the criteria of standard mortgage lenders, either because they take their income from dividends or regularly receive payments from multiple sources. The key to helping these borrowers is finding the right lender – and it’s here that advisers play a crucial role.
Advisers need to let these customers know that that there are specialist lenders out there who will underwrite them. However, that’s just the beginning. Brokers can assist even further by helping to make their client’s application as smooth and trouble-free as possible.
Check the criteria
Before starting an application for self-employed clients, it’s essential that when income is being verified from the latest year’s finalised accounts, advisers check the lending criteria and establish which qualification the customer’s accountant holds. Different lenders have different requirements, so it’s vital that advisers understand which accountant qualification the lender requires before embarking on the application. In the event the accountant doesn’t hold the right qualification, advisers will need to work off the borrower’s SA302 instead.
If the client is submitting an SA302, it’s worth remembering that lenders like Kensington will accept an online version. As long as the HMRC logo, unique tax reference number, customer’s name and tax year are visible on the completed SA302, some lenders (including Kensington) will accept this as proof of income, meaning that clients don’t have to wait for their paper copy. In any case, it’s essential that the SA302 is accompanied by the latest three months of the firm’s bank statements to demonstrate the current state of the business’ finances.
Many self-employed people also operate as sole traders and in some cases do not have a business bank account. Where this is the case, some specialist lenders will accept bank statements from the account where they conduct their business, even if it’s a personal account.
Proof of income
There are also specialist lenders who will accept the borrower’s accounts as a proof of income, rather than relying solely on SA302s, which may only be available after the client has filed their accounts on 31st January.
At Kensington, we take account of net profit [or share of] where the applicant is a sole trader or in a partnership when working out affordability, and we don’t base income on an average over the last few years - borrowers only need to be trading for 12 months. For those receiving their income from a Limited Company, lenders will often assess the salaried income, plus any dividends received. If the applicant is operating as a sole company director and as a 100% shareholder, the underwriter will also consider the use of net profit figures, rather than any dividends or salaried income, especially where those figures are not held for a specific purpose.
When submitting a client’s accounts, advisers may find that lenders want to see finalised accounts covering a 12 month period. In that instance, brokers must provide the full 12 months. In many cases, we see advisers submitting sets of accounts that cover more than 12 months, these figures would then need to be adjusted to reflect the last 12 month trading period.
It’s the little things that help
When going through the different stages of the application, brokers can help to streamline the process by encouraging their clients to provide as many key documents as possible. In the past, submitting lots of information by email and through the post often caused confusion, but some lenders now operate an upload facility that keeps documents in one place. At Kensington, we actively encourage applicants to provide as many relevant documents as they can, as this can help us build up a more accurate picture of the borrower’s circumstances, including their income.
It’s all too easy to view advising on a self-employed mortgage application as a complex, long-winded process, but by following these tips it needn’t be difficult. They may seem like small, simple changes, but they can make a world of difference when it comes to streamlining the self-employed mortgage application. In the end, the clearer the picture an adviser can paint of their client, the easier it will be for the lender to underwrite them.
 UK Labour Market: February 2017, Office for National Statistics