Rate watch · Self-employed · 4 min read
Self-employed? Which year of accounts the lender uses matters more than how many
Two lenders can look at the same tax returns and offer £60,000 apart. Here is why, with a worked example from a Bath sole trader.
Written . Rates and criteria change; check the date before relying on a figure.
“You need three years of accounts” is the most repeated piece of mortgage folklore we hear. Plenty of lenders accept two, and a handful accept one. The bigger question is which figure they take from the years you have.
One set of books, three answers
A sole trader we helped this summer had net profits of £38,000 two years ago and £52,000 last year.
- A lender that averages the last two years sees £45,000.
- A lender that takes the lower year sees £38,000.
- A lender that takes the latest year when profits are rising sees £52,000.
At four and a half times income, that is the difference between borrowing £171,000 and £234,000. Same person, same accounts, same week.
Company directors
For limited-company directors the split is between lenders that use salary plus dividends and lenders that use salary plus your share of the company’s net profit. If you keep money in the business, the second can be far higher.
What to do before you apply
Talk to a broker before your accountant files your next accounts, not after. And keep personal and business spending in separate accounts for the three months before you apply; underwriters read statements line by line.
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