At Enness, we work with a large number of self employed clients want to use the company’s net profits to secure a mortgage. Many of them think they can’t get a loan, because they take a minimal salary or dividends, leaving the majority of the profits in their business.
There are two reasons they do this; firstly, taking a minimal salary makes sense for tax purposes, reducing their tax bill each month. Secondly, many self employed business owners leave profits in their company in order to make further investments for growth.
Business owners who choose this option don’t have the money on SA302 – the most conventional document to demonstrate income as a self employed person.
As such, it’s difficult to demonstrate, on paper, affordability. However, with 15% of the UK labour force now self employed, it’s important these borrowers have chance to get on the property ladder, and there are some lenders who will consider these cases.
How do lenders approach clients who wish to use net profits to secure a mortgage?
There’s only a small handful of lenders who are willing to take a holistic view of a client’s accounts, rather than just income or dividends they’ve drawn down.
It varies from lender to lender how this is calculated – some will use operating profit, which is the net profit pre tax, and others will only accept the post tax profit.
The best affordability is calculated from operating profit, and some lenders will use an average of this figure over the last three years, some two years, and a small number will even accept the latest year’s net profits. Some will also factor in what’s taken as a salary, adding it on top to maximise affordability.
How can Enness help clients use net profits to secure a mortgage?
Enness works with a network of over 250 lenders, including those who will lend to self employed borrowers. It’s an area we have a wealth of experience in, so if you’re self employed and want to use your business’ net profits to secure a mortgage, get in touch and we would be happy to discuss your requirements.