Determining income levels is crucial for lenders to evaluate the creditworthiness of borrowers. But there are various methods to assess the income of self-employed people and company directors with significant shareholdings, many of which vary from lender to lender.
What counts as income?
Some lenders consider up to four income components for mortgage purposes. Most base their affordability assessment on a director’s basic remuneration and their dividend income – typically averaged over the past two years. In addition, certain lenders might take into account the post-tax – or the pre-tax – profit share of shareholders with a stake greater than 50%. Some go even further by calculating withdrawals against a director’s loan account.
Relying on historical income
Outdated income information can pose a challenge for small business owners, based on lenders assessing tax returns or company year-end accounts that are up to 18 months old. For the self-employed, lenders use the lower of the average taxable income of the past two years or in the most recent tax period.
Small business owners often have a unique financial structure, but an experienced mortgage adviser can help company directors find their way through the mortgage income maze and source the best possible mortgage deal.
Are you a company director with a mortgage and controlling stake? Speak to our experienced in-house mortgage team on 03300 564 446 or get in touch via our contact form.
This article is for general information purposes only and does not constitute financial advice or a personal recommendation. Your home or property may be repossessed if you do not keep up repayments on your mortgage. Mortgage availability and terms depend on your individual circumstances and are subject to lender criteria.
