High Street Lenders generally consider SA302 tax calculations and tax overviews of the latest two years when assessing a Self-Employed applicant’s income. Some Lenders consider annual accounts and director salaries for limited company shareholders. These are the main types of acceptable proof of income.
Lenders have different criteria in terms of employed and self-employed classification. It is possible to classify a daily rate contractor as both employed and self-employed based on the proof of income utilised.
For example, if a daily rate is used, some Lenders classify contractors as employed, under the PAYE system. If SA302 salary and dividend income is used for the affordability calculation and underwriting, these applicants will be classified as self-employed. Usually, the affordability or the maximum loan amount is higher when the employed/PAYE route is used.
A significant proportion of self-employed mortgage applicants are shareholders of their own limited companies. They own 100% of the shareholding between the husband and wife. Therefore, when a joint mortgage application is submitted, the limited company income could be considered: profits and dividends.
The circumstances of the current pandemic have impacted the mortgage industry. It is challenging to apply for a mortgage if an applicant is a furloughed director of his own limited company. However, it does not mean that all Lenders are going to reject the application. Some Lenders would still consider the application; however, the product fees and the interest rates could be high.
Most Lenders will want to see at least two years’ accounts or tax returns. The more accounts you can show, the better. Self-employed applicants would require:
When Lenders determine how much to lend to you, some base their calculations on your average profit over the past few years. The accounts submitted must have been certified by a suitably qualified accountant. Make sure your accounts are up-to-date and in order before you apply. Lenders are not impressed if they are presented with out-of-date figures.
If you do not have two years’ accounts, do not panic. Some Mortgage Lenders will still consider your application with one year’s accounts, especially if you can prove a track record of continuous work. In instances where you have left employment to work as a contractor in the same industry or have evidence of work lined up for the future, evidence of this could be provided to the Lender to enhance the strength of the application.
We at WIS Mortgages and Insurance Services are ready to help you find a suitable mortgage and provide you with valuable financial insights.
As a mortgage is secured against your home or property, it could be repossessed if you do not keep up mortgage payments.