How Do Mortgage Companies Calculate Self Employed Income
Mortgage companies calculate self employed income according to your business structure. For a sole trader or partnership, the usual figure is net profit from your self-assessment tax returns. For a limited company director, most lenders start with salary plus dividends drawn, and a smaller number will also count profit retained in the company.
The period matters as much as the definition. Two or three years of figures are standard, and the lender will usually average them. If your income is rising, the average understates your current position; if it is falling, the lender may use the most recent year instead, which is worse. Some lenders will consider one year of accounts with a good explanation, but they are the exception.
Add-backs can help. Accountants sometimes add back one-off expenses, such as depreciation or a single large cost, to show underlying profit. Not every lender accepts add-backs, and they need to be clearly documented in the accounts, so raise them with your accountant before you apply, not after.
- Sole trader: net profit. Company director: salary plus dividends, sometimes retained profit.
- Two to three years averaged is standard; one year is the exception.
- Documented one-off add-backs can raise the accepted income figure.
Try the free calculator to work out your own figures in seconds.