Self-Employed Banker Mortgage

How do lenders assess mortgage affordability for self-employed bankers with variable income or bonuses?

With self-employment generally, the assessment of income is dependent on whether the applicant is a sole trader, a director of a limited company, in a partnership or a contractor. The assessment for affordability differs for each.

Variable income and bonuses are expected for a self-employed applicant. The income will be confirmed in personal tax calculations, also known as SA302s, or finalised company accounts.

Income for the self-employed is not separated out into basic pay, bonuses, commission, restricted stock units (RSUs) or any other denomination. Lenders just look at the full earnings for the tax year as shown on the SA302s and finalised accounts. We can use that without it being separated.

What documents do I need to prove my income as a self-employed banker or company director?

If you’re a banker operating as a sole trader, we need the most recent two years’ personal tax calculations, historically known as SA302s, and tax year overviews. These are HMRC documents showing the income reported to HMRC and the tax paid.

They show your net profit from self-employment – that’s the key figure, and it’s generally averaged over the most recent two years. If there’s been a reduction in the most recent year, we use that figure. For a sole trader who has only completed their first year of business, we can just use that year’s SA302.

For a banker who’s a director of a limited company or in a partnership, we can either use the personal tax calculations as before, or finalised company accounts. With the accounts, the key figures are the director’s salary and the net profit for the business.

It could also be your share of net profit if there are multiple directors or partners. Again, we’re looking at the most recent two years here. We can’t usually take one year, generally.

This won’t be the most useful approach for applicants who are not drawing 100% of their potential earnings. That’s often the case, as it can be more tax-efficient to keep money in the business, or to put it away into a pension.

In that case, using the profit shown on company accounts can give you a higher income and maximum level of borrowing.

Can retained profits in my banking consultancy or limited company be included in my mortgage income?

Generally not. Retained profit is not generally used, as lenders base the assessment on income that’s actually earned each tax year. Retained profit would be a blend of earned income over previous tax years and could incorrectly inflate your annual income figure.

Lenders want to confirm an applicant’s true earning capacity. If your net income is very strong based on the director’s salary and net profit, using retained profits may not be necessary.

How many years of trading or accounts do lenders usually require for self-employed bankers?

For the majority of mortgage lenders, a minimum of two years’ is required – but there is the potential to utilise one year’s personal tax returns if it’s the first year of trading.

Are there specialist lenders who understand self-employed professionals from the banking or finance sector?

Some banks are more extensive in how they approach self-employed clients and their income. They may have dedicated criteria to capture this – special contractor criteria, limited company criteria or partnerships criteria.

I wouldn’t say there are specialist lenders for each particular client type. Specialist lenders tend to be smaller banks that operate within lending niches – such as second charge loans or adverse credit. There isn’t a lender focusing purely on banking clientele.

Specialist lenders also tend to have higher rates because they are small and focusing on niche areas. For the majority of clients, we get the best value by leveraging the high street for lower rates. That’s always our first port of call.

It depends on the exact client situation, however. If a client is in a high net worth position, we could access private banking. The understanding and criteria around self-employment can then be even broader and more expansive than the high street.