Problem Mortgage

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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.

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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.

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