How is your income assessed?
As a self-employed applicant you have access to the same range of mortgages as everybody else and you’ll need to pass the same affordability tests. But, because there is no contracted salary from an employer, self-employed people are required to provide more evidence of their income than other borrowers. The evidence of income depends on how your company is set up.
Sole traders are one-man bands and keeping accounts should be fairly straightforward. The lender will look at net profits when assessing your income. If you do your tax by self-assessment you will get a form called an SA302, which shows the total income received and total tax due. This form will be requested by some lenders as proof of income, while other lenders will look at your accounts and net profits only.
If you go into business with someone else, you might set up a partnership. When assessing your income, mortgage lenders will look at each partner’s share of the net profit so make sure you have accounts that show exactly how much money you made so the lender can see your annual income. As with the sole traders, some lenders will request to see your SA302s as evidence of income.
Setting up a limited company means you keep your business separate from your personal affairs. A limited company will have at least one director and, in some cases, a company secretary. Directors normally pay themselves a basic salary plus dividend payments and this is what will be taken into accounts by the lender when assessing your affordability.