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Top 5 mortgage myths for company directors and self-employed

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As the number of women launching businesses continues to grow, so too does the need to highlight the wider lifestyle-focused implications of being a company-director or business owner.

Some of the most common concerns are related to mortgages, and how changes to their financial circumstances might affect their potential to get on the property ladder, or re-mortgage.

Expert mortgage advice site, Online Mortgage Advisor, has dispelled some of the most common mortgage myths for all you entrepreneurs – so you know exactly where you stand.

1 - You need 3 years trading history
This isn't true. Yes, almost all lenders want to see 2 or 3 years accounts, but it’s still possible to borrow for a mortgage using income from a company that’s been trading for just 12 months. In fact, in certain cases 10 months of accounts is also acceptable providing you have the right working history, proven future viability of the business and, of course, accounts from a qualified accountant.

2 - Your maximum borrowing is based on trading history, and averaged out
Although this is true of most lenders who will average the last 2 or 3 years income to assess affordability, it’s not always the case. If you’ve had historical losses, high expenses, or just had a much better turnover in the most recent year then there are specialist lenders who will go on the latest figures only. This can have a big impact on maximum borrowing figures, for example:

2014 = £50k,
2015 = £30k,
2016 = £100k income

And the banks lend at 4x multiples

Most banks will average all 3 years accounts = 60k x 4 = 240k max loan
A few banks will average last 2 years accounts= 65k x 4 = 260k max loan
Some specialists will use last year’s accounts = 100k = 400k max loan

This can be the difference between dream home and settling for something less than ideal.

3 - You can’t use retained profit left in the business to borrow more money
Most banks stipulate that ltd company owners can only borrow based on what they've taken from the business. For example, if your company profit was 200k and you only took 30k salary in order to leave some funds for tax and investment purposes, most lenders will offer a mortgage based on 30k income. This means maximum lending for a mortgage would be from 120k-150k. Some specialist lenders will consider the full 200k as it’s profit that could have been drawn, but wasn’t – and that maximum loan would be £800k-1million. A huge difference.

4 - You need a bigger deposit if you’re self-employed
Not true. It is extremely rare that a lender will stipulate self-employed borrowers need more than employed borrowers to access their products. Yes, if you use the latest year’s figures or retained profits then the number of lenders is less and therefore these lenders may not go up to 95% loan-to-value, but if you're applying under standard circumstances then there’s no reason why you can’t borrow as much as someone who’s employed.

5 - If you're self-employed you need a squeaky-clean credit file
Again, not true. There are several specialist lenders offering self-employed mortgages to those who also have adverse credit, including those who have had a bankruptcy or recent issues like late payments, defaults, or county court judgments (CCJs).

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