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As an employee the process of proving your income as part of a mortgage application is fairly straightforward. Produce your payslips and your P60, perhaps get a letter from your employer, and you’re done.
Providing potential lenders with supporting evidence of your income when you’re self-employed isn’t always quite so straightforward.
Like all lenders, mortgage providers will assess your income over a period of time to evaluate your ability to make repayments. For employees this means looking at their base salary and any regular extras, but self-employed income can be more variable.
This might mean that lenders will assess your income over a longer period of time, to get a clearer understanding.
In simple terms, this means potential lenders will look at how much you actually make from the business, after deducting expenses and costs. If you’re the director of a company then lenders will consider a combination of your director’s salary and dividends.
This depends on the structure of your business, because whilst sole traders simply keep any profits, company directors are legally separate from their business.
A good credit history and rating is usually the starting point of any application you make to borrow money. Lenders use this information to assess your reliance on credit, in order to make sure you can afford repayments.
Some mortgage providers also ask self-employed applicants for a business forecast. This might include the details of upcoming work or contracts, your business plan, and business finance, for example.
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