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.
How will a mortgage lender assess me if I’m self-employed?
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.
Lenders will want to know your net profit figures, rather than just turnover.
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.
How do I show evidence of my income if I run my own business?
This depends on the structure of your business, because whilst sole traders simply keep any profits, company directors are legally separate from their business.
You can show your Self Assessment tax calculation using HMRC’s SA302 form. Lenders will normally want to see a form that is less than 18 months old so they have a more accurate view of your recent earnings.
A company director will need to show their SA302 if they receive dividends, as well as the company accounts and the details of any salary they take. An accountant can provide an accounts certificate as part of the process.
What else might I need?
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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A content writer specialising in business, finance, software, and beyond. I'm a wordsmith with a penchant for puns and making complex subjects accessible. Learn more about Elizabeth.