I am self employed can I use my last years self employed income for a mortgage or do I have to take an average of the last three years?
The good news is we have a number of lenders that will consider last years self employed income for a mortgage rather then taken an average to include previous years.
If you are reading this page I assume you believe this stance will be beneficial as it should increase your borrowing potential? Well it certainly could but there are other factors to consider:
- Whether you have had previous mortgage experience.
- The extent of the year-on-year uplift. For example, come Lenders will limit this to 25% increase on the previous year, if the rise is greater they would revert to applying an average when assessing affordability.
- Your deposit size. Most Lenders have lower income assessments for loans with a 10% (or less) deposit.
- Do you want to take retained profits in the business into account as only certain Lenders allow this to be factored in. We have written a separate article on this topic please click here to view.
- The same theory applies to major shareholders in limited companies but normally the assessment will be on directors remuneration plus dividends rather than net profit.
How could the last year’s net profit help you get a greater mortgage?
Below is a table that shows the theory of how last year’s figure might help you. Bear in mind each Lender has different rules that sit behind their logic and explained in the bullet points above.
| Borrowing Potential | |||||
| Figure applied | Income multiple 4 times | Income multiple 4.25 times | Income multiple 4.4 times | Income multiple 5 times | |
| Last years | £140,000 | £148,750 | £154,000 | £175,000 | |
| Two year average | £130,000 | £138,125 | £143,000 | £162,500 | |
| Three year average | £120,000 | £127,500 | £132,000 | £150,000 | |
So for example, if your last 3 years net profit figures were £25,000, £30,000 and £35,000. You could in theory borrow £175,000 however this would only be the case if you were a next time buyer, as the Lender that offers this generous assessment limits borrowing to 4.4 times for first time buyers.
As you can see things are not always as straightforward and that’s where brokers like Niche Advice can be of great assistance. If you are self-employed and are looking at working of the last years account figures for your income then we could help.
If you self employed income for a mortgage please call us on T: 020 7993 2044, alternatively complete the online enquiry form so we can assist you with your mortgage enquiry.
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. To get in contact with him please click here.
