What Income do Mortgage Companies Look At Self-Employed?

What Income do Mortgage Companies look at for the Self-Employed?

Getting a mortgage as a self-employed applicant is mostly a question of proving that you have a reliable income and mortgage lenders will ask for various documents to check your affordability. We take a look at what’s involved and how you can best prepare.

What counts as self-employed?

Most lenders will see you as self-employed if you own more than 20% of a business that provides your main income.

Self-employment can mean that you’re a sole trader, a company director, a partner, a freelancer or a contractor. These are all typical situations where Total Home Loans can help you find suitable deals.

Why proving your income is so important

Mortgage lenders always ask for proof of income as part of the application process, and it’s central to how much they will offer you in a mortgage. Generally you can borrow around four to five times your annual earnings. 

Self-employed mortgage applicants have to provide a couple of years’ business or tax details, because often your income varies from month to month, year to year. More records give the lender a better sense of your average income and you will also need to supply business and personal bank statements. Lenders will also look at your credit score too.

I’m a Sole Trader, how do I prove my income? 

As a Sole Trader, your business profits are the same as your income. Lenders usually assess Sole Traders by looking at your self-assessment details, previously known as the SA302 form. You usually need up to three tax years’ calculations, which you can download from the HMRC website. 

I own a business, how do I prove my income? 

If you run your own Limited Company, lenders usually want to see certified accounts for the past one to three years. Each year’s accounts should state your salary. If not, you might need to supply P60 forms or tax calculations. 

Different lenders will take your income in different ways. If you pay yourself a low salary to keep tax down, you may need to find a lender that will base your income on net business profit rather than your stated salary and dividend payments. This approach will usually allow you to borrow more.

I’m a contractor – how do I prove my income?

Some lenders have a special approach for self-employed borrowers whose core business is contracting, and these may base your income on your day rate. They could set a minimum requirement for continuing income, commonly two years, although some specialist lenders will accept 12 months of continuing income. You will need to show details of your current and previous contracts.