Mortgage lenders' income requirements for the self-employed

Jeni explains what residential and buy to let mortgage lenders count as income if you're self-employed or the director of your own business.

Mortgages for self-employed borrowers are often perceived to be harder to come by, or subject to additional requirements. The reality is that this is not the case. The only thing that can be confusing is what actually counts 'income' as some lenders differ on this point.

For a sole trader, income is the net taxable income as per the amount indicated on an SA302 form from HM Customs & Excise (see bottom of this article for a definition of an SA302).

Generally speaking, mortgage lenders will work on either:

  • The average of the last two years' SA302s, if the most recent figure is higher
  • The most recent year's figure

A handful of lenders work on an average of the last three years' SA302s.

For company directors, some lenders work on salary plus dividends using the same principle as above, and a few will use salary plus share of net profit, which for those company directors who choose to leave profit in the business, can be a more favourable calculation.

Working with mortgage lenders on daily basis, I've found that Virgin, Clydesdale, Kensington, Woolwich, the Halifax and the Coventry work well for self-employed borrowers, but obviously there are more options available and we aim to match the right lender to each client's specific needs.

Turnover is not income!

Some borrowers get slightly confused believing that their turnover is their income, but lenders will not accept this! It's all about the taxable income i.e. profit.

There are very few lenders that will lend to someone with less than two years' figures, so if you are in this situation do get in touch to chat through the options.

If you do have two years' worth of figures and are looking for a mortgage, you can save time by getting your SA302s ready before submitting an application. Again, do get in touch if you need help.

What is an SA302?

It is a statement of your tax calculator from HMRC. It provides mortgage lenders with evidence of your earnings and how much tax you owe. You can only get one if you've filed your self-assessment tax return.

You get an SA302 for the last four years of your earnings. Most people download their SA302 from their HMRC online account but you can request HMRC to send them to you although this can take up to two weeks to arrive.

Most lenders will accept either:

  • The SA302 as provided by HMRC (either by post or one you have printed from your HMRC online account).
  • A tax calculation printed from commercial software which has been used to submit returns (most likely by your accountant).

For more information on SA302 visit the SA302 tax calculation page on Gov.uk

 

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