How Are Self Employed Mortgages Calculated
Self employed mortgages are calculated in the same two steps as any mortgage: first the income is established, then an affordability model is applied. The difference is how income is established. Salaried applicants show payslips; self-employed applicants show tax returns, accounts and sometimes bank statements, and the lender decides which income definition to use.
The affordability model then tests the monthly payment against your income after regular outgoings, and applies a stress test at a higher rate. Lenders also cap borrowing with an income multiple, and the deposit size changes the rates available. A 10% deposit and a 25% deposit can produce very different outcomes on the same income.
Because lenders differ so much on self-employed income, the same applicant can get very different offers from different lenders. A broker who specialises in self-employed cases is often worth the fee, because they know which lenders accept which income definitions.
- Step one: establish income from tax returns or accounts.
- Step two: affordability model with stress test and income multiple.
- Lenders differ widely, so comparing more than one offer matters.
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