Mortgages for all types of employed and self employed
Our standard employment policy can be found below, detailing all aspects of self-employment, as well as providing additional information on employed contractors and sub-contractors. Please note, subcontractors in long term single employment can be underwritten as employed if they can satisfy the specific criteria stated in the section below.
Your clients’ affordability is assessed against their latest two years income figures and underwritten against 100% of salary and dividend.
Affordability is assessed against an average of their last two years net profit. SA302’s with associated tax year overview are required to support the application. A current year’s projection from a suitably qualified accountant may also be considered as part of our underwriting assessment subject to the following conditions:
- Two years previous accounts being available;
- Accountant projection is based on minimum 6 months year to date management accounts; and
- Income is then calculated against the average of the two full years and the current year end projection.
A three year average may also be applied to offset a reduction. Cases are considered on an individual basis provided that a satisfactory explanation can be given for any decline and an accountants projection is available to support the application.
Your client has been trading for a number of years and has income history for the previous three years showing £55,000 in year 1, a drop in income to £35,000 in year 2 and a subsequent increase back to £55,000 in year 3. Their accountant has provided a satisfactory explanation for the decline in year 2 and confirmed that current income levels were sustainable. Allowable income for our mortgage purposes would be calculated against a three year average - £145,000 / 3 = £48,000
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Employed and self-employed fixed term contractors
Due to the changing nature of the UK employment market we have tailored our acceptable contractor mortgage criteria to assist borrowers employed within the short term renewable contract arena. Contractor applications are accepted from both first and second time buyers, subject to the following criteria being satisfied:
- The existing contract must have a minimum of six months remaining at time of application or the 'employer' must confirm that the contract will be renewed for a further six months; and
- Affordability will be calculated against the lower of the current contracted daily rate x 5 x 46 weeks (excludes weekends and bank holidays) or as an average of the last 12 months gross income.
Sub-contractors in long term single employment: Gross income used to determine maximum loan
Sub-contractors in long term single employment will be underwritten on an 'employed' basis if they can satisfy the below criteria:
- Minimum six months working with current contractor;
- Client must be able to demonstrate a consistent level of earnings each month;
- A reference will be required from their 'employer' confirming their start date, monthly earnings and that the services of your client on a 'sub-contracting' basis will continue for the foreseeable future, so no fixed end date;
- Our standard product range up to 95% loan to value will apply.
We can consider CIS contractors as employed when calculating affordability. To verify income we take the gross income over the past 6 months and annualise.
Mr F worked as an IT consultant and was looking to borrow £200,000 at 85% loan to value. His wife, was a freelance journalist, but had been self-employed for less than 12 months, which meant her income had to be excluded from our assessment. Mr F had been previously employed by an IT company for three years, and on their suggestion he had switched to self-employed status eight months earlier, and was now classified as a sub-contractor rather than an 'employee'.
This change of status within the previous 12 months had prevented his estate agency based mortgage consultant from securing a mortgage from a number of high street lenders. The case was referred to us and we were happy to assist as the client had three years employment history and his 'employer' was able to supply the required reference confirming his total gross earnings to date and the fact they had no reason to believe the relationship would not continue long term.