What Income do Mortgage Companies look at Self-Employed?

What counts as Self-Employed?

For the purposes of supporting a mortgage application, you’re Self-Employed if 20-25% or more of your gross annual income is earned through Self-Employed business activities. The following roles are considered to be Self-Employed business activities by Mortgage Lenders:

• Limited Company Director or Partner owning 25% or more in shares
• Sole Trader/Freelance worker
• Contractor
• Proving your income as a Self-Employed applicant

Self-Employed applicants will typically be more rigidly assessed than employed applicants, even where their income is particularly high. This is because there is a higher potential for income fluctuation with Self-Employed income, which can make lender confidence in the stability of your income more difficult to obtain.

Proving your income as a Sole Trader

If you carry out Freelance work or act as a Sole Trader, lenders will need to form a stable annual income pattern for you, usually over more than one year, although this varies from lender to lender. In order to establish this, they will need to assess your:

• Certified accounts over their defined period
• Tax calculations for the same duration (previously known as SA302 forms)
• HMRC tax overviews for the same duration

Proving your Income as a Company Director

Although for tax purposes you may be classed as Employed by your own company, when it comes to a mortgage application, Mortgage Lenders will treat your application as Self-Employed. This means that you will typically need to provide evidence of your personal salary and dividends payments, although some lenders will consider your net business profits. If you own 25% or more as a partner, just your share of the net profits will be used in the loan calculations.

Similarly to the Sole Trader, you will need to provide accounts and tax documentation. specifically:

• Certified accounts for the term requested
• Tax calculations and HMRC tax overviews for the same length of time
• Business banking statements

Proving your income as a Contractor

Assessing Contractor income can be slightly more complex, as it depends on how you are paid. For the various types of contract payment, the following proof is typically required:

• Contractors working on a freelance basis will need to prove their average annual income, so;
  • Certified accounts
• Tax calculations
• HMRC tax overviews
• Day-rate Contractors will need to show proof that ongoing contract work is available to them and contracted day-rate, which will usually be annualised, and treated similarly to PAYE income
• Umbrella company Contractors are actually assessed as PAYE applicants. The documents needed are therefore:
  • Payslips from the umbrella company
  • Bank statements