What Income Do Mortgage Companies Look At Self-Employed?

What counts as Self-Employed? 

If you’re Self-Employed and 25% or more of your total annual income is gained through your Self-Employed business activities, then the vast majority of Mortgage Lenders will accept that in support of your mortgage application. You may earn income in any of the following ways:

• Limited Company Director
• Partner with 25% share or more
• Sole Trader/Freelance work
• Contract work

Even high earning Self-Employed applicants will be assessed more stringently than PAYE applicants, as the potential variance in Self-Employed income can make it more difficult for lenders to establish a stable income pattern. 

Proving your income

Self-Employed borrowers will need to provide evidence of a more substantial duration of their trading history, to mitigate the risk involved with a fluctuating income stream. In most cases, lenders will request proof of income spanning two to three years, although some are happy to accept a single year of accounts.

Your trading style will influence the proof of income required, and whilst lender criterias vary, you will ordinarily need to provide the following:

Proving your income as a Sole Trader

Lenders will want to find your average net annual income, so they will need the following documents. The number of years required will depend on the lender:

• Certified accounts
• Tax calculations (previously known as SA302 forms)
• HMRC tax overviews

Proving your Income as a Company Director

Your personal salary and dividends payments are what most lenders consider, however, some will also take your net business profits into account when calculating your loan. If you own 25% or more as a partner, your share of the net profits will be used.

In order to prove this income, the following documents are ordinarily required:

• Certified accounts
• Tax calculations
• HMRC tax overviews
• Business bank statements 

Proving your income as a Contractor

Your income is assessed depending on how you are paid, so proof of income will be based on your specific payment type. 

• Freelance working contracts – you will need to provide your certified accounts and tax calculations to prove your personal income, for the duration requested by the individual lender
• Day-rate contractors – Proof of ongoing contract availability, as well as your agreed day-rate, which some lenders will annualise to provide a salary figure
• Umbrella company contractors will be assessed as PAYE applicants, so your payslips from the umbrella company are usually used.