How much can a self-employed professional borrow?
Professionals can borrow at between five and six times income with some self-employed mortgage lenders. In fact, it's currently possible to borrow at a 6.5 Loan-to-Income (LTI) multiplier with one s.
By comparison, applications from other self-employed people are generally restricted to a 4.5-5 Loan-to-Income multiplier.
How is professional income assessed?
How your professional income is assessed depends on whether you're a limited company director, LLP equity partner or contractor.
Here's more info on each of them...
Limited company directors
For limited company directors, self-employed income is calculated in one of three ways, depending on the lender used:
- Salary and dividends. Either an average of the last two years figures as per your tax calculations or the latest year
- Salary and net profit after corporation tax. Some lenders use the latest year's figures from business accounts produced by a qualified accountant. Others average the last two.
- Salary and pre-tax net profit. Nearly always an average of the last two year's numbers.
To use options 2 or 3, a minimum 50% company shareholding is often required. For more information see our limited company directors mortgage guide.
Equity Partners in a LLP
Equity partners in a Limited Liability Partnership are assessed in one of two ways:
- Using the partner's share of net profit after tax, as evidenced by the LLP's finalised accounts.
- The partner's income as evidenced by their annual tax calculations/SA302s.
Our Mortgage Guide for LLP Partners has more information on how LLP member's income and affordability is assessed.
Contractors
If you're a contractor, we have a number of self-employed mortgage guides including for limited company contractors and umbrella contractors.
Sole traders
Most lenders take the profit from self-employment figure as evidenced from your SA302/Tax Calculations and the corresponding Tax Year Overview documents. Usually for the last two years, though a few will use your latest year's figures.
What other factors affect how much I can borrow?
Your maximum borrowing amount is dependent on several factors including:
- Your annual income
- Your age
- Deposit size
- Whether you have any financial dependents (children or elderly relatives)
- Debts:
- Ongoing financial commitments
- The mortgage term
- The concessionary period. For example, a five-year fix can often allow greater borrowing than a two-year fix
As you can see, income is no longer the sole criteria for affordability.
Ongoing financial commitments
Nowadays, all providers have to take your personal circumstances into account, including committed expenditure for things like spousal support, child maintenance, tuition fees and so on.
As you might expect, debts such as credit card balances (unless they're cleared monthly), unsecured loans, overdrafts, or personal car finance are also looked at closely.
The size of the debts, the monthly payments to service them, and the duration of the loan will all affect how much you can borrow.
Joint mortgage applications where only one applicant is a professional
For a joint application, most lenders apply the 'standard' income multiple of 4-4.5 x income to an employed or non-professional self-employed applicant.
Here's an example...
Jenny is a self-employed solicitor with a 50% equity share in a Limited Liability partnership (LLP). Her share of post-tax profit is £87000 in the latest year which some lenders will base their calculations off.
Her civil partner Kerry is employed full-time in a local government senior finance role, earning £62000 p.a.
The lender for the mortgage product sourced allows 5.5 x income for a self-employed professional, and 4.5 x income for other roles. Note that whilst Kerry works in finance, her role does not meet the lender's specific definition to qualify as a 'professional'.
The maximum borrowing amount, subject to affordility assessment, is calculated like so:
- 5.5 x £87000 = £487500
- 4.5 x £62000 = £279000
- Maximum borrowing = £766500
What are the eligibility criteria
Due to the higher borrowing available, mortgage providers require applicants to meet strict eligibility criteria.
You'll often need a minimum income of £30,000 to £50,000 and a good credit history.
Regardless of whether you have a limited company or Limited Liability Partnership, most lenders require two years or more trading history with HMRC submitted accounts or tax calculations. Note that lenders don''t accept tax returns.
The bank or building society may also specify a maximum age at mortgage application. Typically borrower's must be no older than 35 or 40 years old.
What documents do I need to provide?
The documents required by a self-employed person to support a mortgage application varies between lenders. The business structure is also key.
But all self-employed applicants are required to provide their last three months personal and business bank statements to verify income and expenditure.
Your mortgage broker will also need to see your credit report so that he can place you with the most appropriate lender.
Our handy self-employed document checklist has more details.
Mortgage advice for self-employed professionals
Getting a self-employed mortgage doesn't need to be difficult. Our mission at SEMH is to help self-employed borrowers buy their home or investment property as quickly and smoothly as possible.
And with the most suitable pound-for-pound mortgage deal for their circumstances and credit rating.
As an independent, whole-of-market mortgage broker, we serve entrepreneurs, company directors, LLP partners and contractors nationwide. Sourcing the best mortgage rates and products for their individual circumtances.
To get expert self-employed mortgage advice, just get in touch and tell us what you're looking to do.
Our simple quiz takes about 2 minutes to complete and you'll also be able to schedule a free 15 minute consultation to discuss your case in more detail with a mortgage adviser.
Of if you prefer, call us on 0117 205 0655 during our office hours of 9am to 5pm Monday to Friday. There's no call center or queueing. You'll speak to an adviser direct.
We look forward to finding you a great mortgage deal.
