Self Employed Mortgage – Borrow more when using the last year’s net profit
If you need a self employed Mortgage working from you latest years account then you have come to the right website . It could be me but the ‘r’ word (recession) seems to have been dropped out our vocabulary, as businesses are putting the worst years behind them and continuing to march out of the doldrums, mortgages should be more affordable as the rates have remained low. Increasing profit trends are encouraging and there are Mortgage Lenders that will look to the latest set of accounts and net profits to base their affordability assessments on. It is of course, not as straightforward as that as the majority of Self Employed Mortgage Lenders still err on the side of caution and apply an average over two or three years . In this article I will explore the Mortgage Lenders that use the last year’s net profit figure in more detail.
Firstly, it is important to bear in mind the following:
- A two year average used in conjunction with a high income multiple could still produce a higher borrowing amount than a Mortgage Lender that works off the latest net profit figure but has a lesser multiple.
- For major shareholders of limited companies (directors over 20% shareholding) some Lenders will include retained profits in their affordability assessments rather than simply take the dividends and directors remuneration (salary) which is more favourable.
Lenders that work off the last year’s accounts to get a Self Employed Mortgage
When applicants think of Self Employed Mortgage options they often stop short on research. Everyone is busy these days and that is completely understandable. In the case of last year’s accounts this lack of effort can be costly as the usual suspects such as HSBC, Halifax, Nationwide and Metro all apply averages when assessing net profits.
The more flexible solutions are usually from the small building societies or specialist centralised lenders. Borrowing more could mean the difference between your preferred home or compromise.
This is best explained by the following example:
Bob is a self employed grocer. He has been trading for 3 years and it has taken him a little while to prise away custom from the local convenience stall chain outlet. His earnings have shown encouraging trend and he wants to take advantage of this and borrow enough to secure a flat for him and his new wife.
| Year ending | 2013/4 | 2014/5 | 2015/6 |
| Net Profit | £4,500 | £15,750 | £27,200 |
The table below shows the difference between a Mortgage Lender that applies an average compared to one that uses the last year’s net profit figure, using a typical income multiplier of 4.5 times income:
| Usable income | Lender multiple | Borrowing potential | |
| Average | £15,817 | 4.5 times income | £71,177 |
| Last Year’s Net Profit | £27,200 | 4.5 times income | £122,400 |
This flexible approach may mean the property Bobs wanted suddenly becomes affordable.
If you are looking for a Self Employed Mortgage and want to know howMortgage Lenders we use can further your mortgage chances by using the latest year’s net profit, please call and ask to speak to me personally on T: 020 7993 2044.
Author: Payam Azadi
Payam Azadi is a partner at Niche Advice who are whole of the market Independent Mortgage Brokers. His role is very much focused on Property financing both on residential and commercial lines.
