What income do mortgage companies look at for the Self-Employed?

What counts as self-employed?

If you are self-employed and earn more than 25% of your overall income through some form of self-employment, then you will be able to use that income to support your mortgage application.The following are considered as self-employed business activities for the purposes of a mortgage application.

• Limited Company Director
• Partner – owning more than a 25% share of the business
• Sole Trader/ Freelancer
• Contractor

Although many self-employed roles provide high earnings, especially for business owners, the fluctuation in this income makes it more difficult for lenders to establish a stable income pattern for self-employed workers, which is why you will need to evidence your income more substantially than employed borrowers do.

Proving your income

The majority of Mortgage Lenders will want to calculate an average income over the past two to three years, in order to establish a balanced income picture for you. There are lenders who will accept just the most recent year’s earnings in some circumstances, so it’s worth having a conversation with us, should you have a shorter income history. 

How your income is assessed will then differ slightly, depending on the type of self-employed business activity you carry out, as per the below explanations:

Proving your income as a Sole Trader

Sole Trader or Freelance income will be assessed on their annual income, usually over two to three years, in order that an average can be established. In order to determine this information, Mortgage Lenders will need your:

• Certified accounts
• SA302 self assessments
• Tax year overview and tax year calculation

Proving your Income as a Company Director

Most Mortgage Lenders use a Limited Company Director’s personal salary and dividends to establish an average income, although there are some lenders who will also consider your net business profits.

If you are a partner with a share of over 25% of the business, then your share of the net profits are used. For business owners, the following is usually required to prove income from:

• Finalised accounts (authorised by a certified accountant)
• SA302 forms
• Business banking statements 
• Some lenders may ask for additional information to evidence the stability of your business, particularly if you have a short trading history. This could be a business plan etc

Proving your income as a Contractor

Some lenders will use your tax returns to establish your annual income over a few years, whilst others may work with an annualised version of your day-rate, if that’s how you are paid. Evidence will depend on your income style and is likely to include:

• Certified accounts and SA302s
• Proof of your contracted day-rate
• Confirmation of continued work availability, contracts etc

Do Self-Certified Mortgages still exist?

Self Certification mortgages were banned by the Financial Conduct Authority in 2009 following unprofessional lending practices leading to Self-Employed people borrowing more than they could afford to repay. Mortgage Lenders are now obliged to seek substantial proof of income for all applicants.