I am delighted to confirm we have now reduced the requirement to assess self-employed income against 3 year track record. As a consequence of this amendment the following underwriting changes take immediate effect:
- Minimum 2 years self-employed history
- Limited Companies – Your clients affordability is assessed against their latest two years income figures underwritten against 100% of salary and dividend. (A percentage of retained profit may also be considered in some circumstances, please refer accounts for full consideration).
- Sole Trader – affordability is assessed against an average of their last two years net profit (SA302’s with associated tax year overview required to support application).
- A current years projection (from a suitably qualified accountant) may also be considered as part of our underwriting assessment subject to the following conditions:
- 2 years previous accounts available
- Accountant projection for current year is based on minimum 6 months YTD management accounts
- Income is calculated against the average of two full years account and the current year end projection
- A three year average may also be applied to offset a reduction – cases considered on individual basis and subject to a satisfactory explanation as to the reason for any decline and a accountants projection
Example 1 (Incorporating a projection)
Clients’ income last two years confirmed as £20,000 (2015), £25,000 (2016), accountant’s projection for the current year end, based on 6 months management accounts is £30,000. Income for mortgage purposes is £75,000/3 = £25,000
Example 2 (One off reduction)
Client has been trading for number of years, income history £55,000 (2014), £35,000 (2015), £55,000 (2016). Accountant provided satisfactory explanation as to the decline in 2015 and confirmed current income levels were sustainable. Income for mortgage purposes calculated against a 3 year average £145,000/3 = £48,000
Kind regards
Richard Groom
Head of Mortgages Sales (Intermediary & Direct)
Tipton & Coseley Building Society
