Mortgages for Self Employed

If you are self employed it is important to understand how the income is treated. Sole trader income is treated different to Limited Company Directors.  

Number of years proof of income for self employment

  • Varies with lender.  High street lenders need minimum 2 years; some will require 3 years.  Specialist lenders will accept just 1 year’s trading income.
  • Minimum trading 1 year.  With 1 year trading no adverse credit accepted.  Rates will be higher than with 2 year evidence.

Latest income or an average: Depends on profit declared

  • If rising and the increase is less than 20% then the latest income. 
  • If increase is over 20%, then average of previous two years.
  • If falling, lower or latest.  May require an explanation for the decline.

Evidence Required

  • Sole traders: SA302: HMRC tax calculation & tax overview or accountant’s certificate from qualified accountant.
  • LTD Co Directors: Tax calculation & tax overview or accountant’s certificate.   Company’s accounts may also be required.
  • Download our guide to self employed income documents requirement.
  • Additionally 6 months personal and business bank statements.

What income will be used for affordability

Sole traders.

  1. net profit for taxation i.e. before personal allowance

Limited Company Directors have 3 options.

  1. Salary + Dividends.
  2. Salary + net profit after corporation tax.
  3. Gross profit or retained profit. Some lenders will consider gross profit instead of salary + dividends if there is year to year consistency.

Not all lenders accept all options.  Therefore, lenders available will differ which option is selected.

Covid-19 – Due to the affect of restrictions currently, lenders will request additional information from self employed and furloghed applicants.  

Self Employed will need to provide answers to following.

  1. Is the business currently trading and what affect has covid restrictions had on income.
  2. Has the business taken government sponsored grants or funding.  If so it will be a detrimental to most applications.
  3. Bank statements for last 3 months show income received.
  4. How has the business managed to overcome the restrictions. 
  5. Income considered is lower of the last 2 year’s net profit.
  6. Importantly: mortgage holidays on personal home will have no affect on applications.