Complex Income Mortgage

If I’ve only been trading for one to two years, are there lenders who will consider me?

If you’re self-employed and have been trading for less than two years, it’s still possible to get a mortgage, although not all lenders will be able to assist.

The majority of lenders want to see at least two years’ figures, but some are willing to consider just one year’s trading.

If, prior to becoming self-employed you were working in the same industry, this gives some lenders the confidence to approve you. Other lenders will be happy provided you have one year’s figures.

Mortgage rates sometimes can be a little bit higher as a result, but it’s possible. Once you’ve got two years, the options open up for you. How those figures look will influence where we go with it.

My income is structured for tax efficiency. Will that reduce my borrowing power?

Whether you’re a sole trader or limited company, a lender will only use the income or profit earned after expenses. Whatever your tax documents show will be what the lender can use.

If you’re trading as a limited company, lenders can either look at the salary and dividends or salary and net profits – both bases are covered there.

My income fluctuates year to year. How will that affect how much I can borrow?

You will still be able to get a mortgage. Mortgage lenders look for consistency, so if your income has dropped, they may ask why this is.

If it has increased a significant amount, a lender may also want to know the reason, and may decide to use an average figure as a result. As long as we can answer those questions with valid explanations, lenders will be happy to provide a mortgage for you.

Will lenders look closely at my personal spending?

Mortgage lenders are mainly interested in your credit commitments – your loans, credit cards, student loans, childcare costs and family dependents.

Normal expenditure such as gas, electricity and council tax will be factored in automatically, using average figures for households in your region.

However, if you overspend or fall into an overdraft each month, that may factor into a lender’s assessment. You do want to show good financial conduct, because lenders can look at anything and everything when making their decision.

If I own properties through a limited company, can that income count?

If you own properties through a limited company, yes, you can utilise that income towards your residential mortgage purchase.

Most borrowers in this situation take a dividend from that company each year, and that’s how a lender wants you to prove the income. It won’t be based on the gross rent, although they might look at the net profit in the company if you’ve had it for a long enough time. The majority, though, would use the income from a dividend.

Can investment or Trust income be included?

Yes, mortgage lenders can accept investment and Trust income. You will need to show consistency of that income and that it will be sustainable over the term of the mortgage.

Some lenders may only use 50% of that income to offset the risk.

Other lenders can be comfortable with using 100% of the income. You may just need a little bit more evidence. Most ask you to evidence the income over at least a year, or potentially two, via tax calculations.

I receive dividend income. Will that be accepted?

Yes, dividend income can be used provided you’re a director of a limited company. They’ll ideally want your shareholding to be more than 20% to 25% to use that income.

Most lenders want to see a track record of that income being received. Again, you would ideally have two years’ tax calculations to provide that.

What about maintenance payments or other secondary income?

Maintenance payments can be used by lenders towards your income, as long as you can show you’ve been receiving them for at least three months. They will use an average over that time period.

They will ask you for the last three months’ bank statements. If the child maintenance shows on those, we can use it towards the mortgage. That’s the same if it’s court ordered – you still need to provide three months’ bank statements.

Other allowable income can include child benefit, disability living allowance or carer’s allowance. Lenders will want to see the latest letter detailing the amount you receive.

It does depend on the rest of the case – lenders often want to see another income there, like an employed or self-employed income from another source.

Should I avoid taking dividends or large withdrawals before applying?

Ultimately, the lender will look at your last two years’ figures if you’re using self-employed income. You can take a dividend or withdraw funds as long as the business is still trading and the accounts aren’t completely empty. There isn’t an issue with you doing that.

If they saw a large transaction on the bank statement, they may ask questions about it, but if the reasons are legitimate, it should be fine.

Any final thoughts, or have we covered all that we can?

Just that preparation is the key here, especially if you have a complex income. Make sure you know exactly what you can use and when. A mortgage advisor will help you work out what you can borrow and, if you need to wait for a couple of months, how best to get ready.

Key Takeaways:

• Mortgages are possible for self-employed individuals with only one year of trading figures, especially if they have prior experience in the same industry, though two years of figures opens up significantly more options.
• A lender will base your borrowing power on the income or profit earned after expenses, as demonstrated in your tax documents. For limited companies, lenders commonly review salary and dividends or salary and net profits.
• If your income fluctuates year to year, you can still get a mortgage, but you must be prepared to offer valid explanations for any significant increases or drops, as lenders prioritise consistency and may use an average figure.
• While lenders automatically factor in normal household expenditure, they pay close attention to credit commitments such as loans and credit cards. Showing good financial conduct, such as avoiding continuous overspending or falling into an overdraft, is crucial for a favourable assessment.
• Lenders can accept various types of secondary income, including dividend income (if you are a director with a suitable shareholding), investment/Trust income, income from properties owned through a limited company, maintenance payments (with three months of statements), and certain benefits such as child or carer’s allowance.

Your home may be repossessed if you do not keep up with your mortgage repayments.

There may be a broker fee charged for our services.

For specialist tax advice, please refer to an accountant or tax specialist.