Mortgages for Self-Employed & Company Directors
Self-employed mortgage applications don't have to be complicated. At Dwello, we understand that proving income when you're self-employed or run a company requires a different approach than traditional employed applications.The good news? Lenders have become more open-minded and flexible in recent years.
Whether you're a sole trader, in partnership, or run a limited company, we'll guide you through the process and help you present your application in the strongest possible way.
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Challenges for Self-Employed Applicants
The main challenge for self-employed applicants is confirming income. Unlike employed individuals who can show consistent monthly payslips, self-employed income can fluctuate significantly year-on-year. The main challenge for self-employed applicants is confirming income. Unlike employed individuals who can show consistent monthly payslips, self-employed income can fluctuate significantly year-on-year.
Here's a common scenario: an applicant earned £50,000 last year but is projected to earn £100,000 this year based on new contracts or business growth. The challenge is demonstrating to lenders that the higher current earnings are sustainable, rather than just relying on last year's lower figures.
This is where timing becomes crucial. While employed individuals can often secure mortgages quickly based on recent payslips, self-employed applicants typically need to wait at least a year to show concrete evidence of their new earning levels.However, lenders are increasingly taking a more common-sense approach, often considering applications manually rather than applying rigid computer-generated criteria.
Sole Traders & Partnerships
Acceptable repayment strategies typically include:
Lenders assess affordability based on what you've declared as income through self-assessment and what the business bank accounts show in terms of regular income patterns.
Proving Current Earnings:
For sole traders experiencing business growth or changes, we often need additional evidence like accountant's letters confirming current trading position and projected earnings. This helps bridge the gap between historical accounts and current business performance.
Company Directors - Salary & Dividends
This route works similarly to sole trader applications, where lenders assess your declared income from SA302s and tax year overviews.
How Lenders Assess Affordability:
Salary vs Dividend Split:
It doesn't matter if you take minimal salary and high dividends, or vice versa. Lenders focus on your total declared income as shown on official tax documents.
Company Trading History:
This route suits directors who regularly extract profits from their companies and have clear tax records showing their total income.
Company Directors - Salary & Retained Income
This is the more specialist route for savvy company owners who don't extract all available profits for tax efficiency reasons.
How It Works:
Rather than just assessing what you've personally taken out of the company, lenders also consider money retained within the business that you could access if needed. This recognises that profitable companies often retain earnings for business growth or tax planning.
Shareholding Impact:
Rather than just assessing what you've personally taken out of the company, lenders also consider money retained within the business that you could access if needed. This recognises that profitable companies often retain earnings for business growth or tax planning.
Important Threshold:
If you own less than 20% of the business, you're deemed an employee and would revert to the salary and dividend route based on payslips only.
Why Choose This Route:
This approach can provide significantly boosted affordability for directors of profitable companies who prefer to retain earnings rather than pay higher personal tax rates on extracted profits.
Documentation Requirements:
Dwello is not making any representations or warranties, and assumes no liability, for the content provided in this article, including any third party information. Consumers should always consult their own financial advisors before making any mortgage or remortgage decisions based on this type of general market commentary and analysis.
All mortgage pricing, rate scenarios and cost comparisons used are hypothetical examples. Actual rates, fees and mortgage costs may vary based on the specific lender and the individual borrower's personal financial circumstances.
Dwello Mortgages, a trading style of Dwello Mortgages Limited is an appointed representative of HL Partnership Limited which is authorised and regulated by the Financial Conduct Authority. Dwello Mortgages Limited is registered in England and Wales with company number 14432864. Registered Office: St James House, Hollinswood Road, Telford TF2 9TW
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