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Don’t believe the tripe; self-employed mortgages – do you need an accountant?

The internet is awash with misleading nonsense, out of context facts and the well intentioned leaving a wake of misinformation.

In this series we’re out to debunk the myths and illustrate the value of a decent mortgage advisor, and to highlight why you should be very careful about making decisions based on information from someone that is not an industry professional however esteemed a source they are.

Today I took a look at the following;

Mortgages for the self-employed – The Guardian

From the article;

“In general, the longer you’ve been self-employed, the better. If you have two years of accounts, you’ll have more choice of lenders; three years is even better. Most lenders insist accounts are prepared by a chartered or certified accountant.

Lenders will also want to see the income you’ve reported to HMRC and the tax paid. SA302 forms show this information, as does a “tax year overview” – HMRC can provide both.”

This is a prime example of most of the statements floating around the internet being part truth, but in this example they have actually got some seriously crossed wires.

The initial statement is completely valid. Most lenders do like 2 or even 3 years trading for self-employed applicants and suitable evidence of the performance of trading. Note the word most.

The final statement however, is extremely misleading.

Technically, it’s probably true. Most lenders would require “accounts” to be made up by a chartered or certified accountant.

The problem is though, most lenders don’t insist on using “accounts” as your proof of income, and most company owners may not even be aware of the difference between their HMRC tax returns and formal accounts.

The article implies that you are not only going to need formalised accounts from a chartered accountant but also your self-assessment returns.

The reality is lenders will usually be taking one or the other, and the type of self-employment may affect what they expect.

But for all types of self-employment there are still plenty of mainstream lenders who can accept just using your self-assessment returns with no need for an accountant to be involved regardless of the legal type of business (i.e. sole trader, partnership or limited company etc).

For the majority of sole traders or applicants in a bare partnership then the usual proof of income accepted by the majority of lenders is called an SA302 (a statement from HMRC declaring what income has been recorded on your submitted tax returns).

Most will also want to see accompanying tax year overviews that confirm whether your tax account is up to date.

There are also plenty of lenders who will accept this as a proof of income for shareholders of limited companies and limited liability partnerships.

Some lenders might insist for shareholders in LTD companies and LLP’s that formally made up accounts are used as proof of income and not SA302’s etc.

For those lenders they would then expect a professional accountant to have completed these.

So this article basically reads like you are going to struggle massively to get a mortgage if you’re not using an accountant. The reality is this is total nonsense.

The advice that more than one years of accounts is needed by most lenders is fair, although notably they go onto say that specialist lenders may be able to help those who only have a single year’s accounts.

We can direct you to high street lenders with normal interest rates anyone else would be offered with a single year’s accounts, and for those contracting on a day rate there could be options available from the high street with several more lenders.

So, directing people onto much more expensive non-high street lenders simply because they only have one year’s trading is again hugely misleading and could cause many people to “self-advise” into taking a much more expensive mortgage than was needed.

This article then is a great example of how someone writing who is not an industry professional can (with I’m sure the best of intentions) actually end up writing something that is downright dangerous, and simply not correct and will mislead people into poor decisions on a wholesale basis.

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