What Income do Mortgage Companies Look at Self-Employed?

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

The most important step in getting a Self-Employed mortgage is proving your annual earnings. Lenders want to know that your business is running well and pays you a steady income. Let’s explore how they will assess your income and how you can prepare.

What counts as Self-Employed?

Lenders consider you Self-Employed if you own more than 20% of a business that provides you with your main income. You might be a sole trader, a company director, in a partnership or a contractor. 

Why is proving your income so important?

Most lenders calculate how much to lend you based on your earnings. So the first thing a mortgage company will want to understand about you is how much you earn.

This is straightforward for a typical company employee – they state their salary and confirm it with a few payslips. But when you’re Self-Employed your income can vary, so it’s harder to get a sense of your usual earnings. So lenders usually want to see two or three years worth of business records to understand your average income.

They will also request business and personal bank statements and look at your credit score.

Proving your income as a Sole Trader

From a legal point of view there is no difference between a Sole Trader’s business accounts and your personal affair; your business profits are taken as your income. 

Lenders usually assess Sole Traders’ income by looking at your most recent self-assessment forms (these used to be called SA302 forms). You can access these from the HMRC website. 

Proving your income as a Company Director

Limited Company Directors usually need to provide certified accounts for the last one to three years. Each year’s accounts should state your salary and any dividend payments. You might also need to provide income tax records. 

Each lender will have their own rules on what they will accept as income – and this can make a big difference if you, like many directors, pay yourself a low salary to reduce your tax. 

Certain lenders will accept retained profits in your business rather than your stated salary, which often means you can borrow more.