Problem Mortgage

Self employed? You could be heading for a mortgage headache

A self employed mortgage is a problem mortgage: the same information your accountant uses to help you pay less tax can actually prevent you from getting a decent mortgage deal. Look for lenders that want to know your gross income, not the net.

When is a mortgage a problem mortgage? When you can't borrow as much money as you need. It's a particular problem for self employed people, whose accountants go out of their way to reduce the net income – the amount you pocket after costs – to make sure their clients pay as little tax as possible.

It's great from a tax perspective, but not so good from a mortgage perspective: if you bring in £30,000 per year and your costs are £15,000, many lenders will base their mortgage calculations on your net income – in this example, £15,000. With a typical 3.5x multiplier, that means the most you could borrow would be £52,500. By comparison should the lender just ask about your gross income, you'd be able to borrow up to £105,000.