Do self employed pension contributions count towards earning for the purposes of a mortgage?

adamc123

Hi, quick example scenario below:

Salary £50,000
Deposit £50,000
Potential borrowing amount circa (£50,000 x 4.5) + £50,000 = £275,000

Do lenders count self employed pension contributions as earnings?

For example, If I had paid a lump sum of £20,000 this financial year, it could be (£70,000 x 4.5) + £50,000 = £365,000

Many thanks and hopefully the above makes sense

Dazed_and_C0nfused

Salary £50,000

Do lenders count self employed pension contributions as earnings?

Are you employed and self employed?

adamc123

Dazed_and_C0nfused said:

Salary £50,000

Do lenders count self employed pension contributions as earnings?

Are you employed and self employed?

Hi there.

Company director. 
PAYE + Dividends
(then pay lump each year towards pension)

thanks

K_S

@adamc123 Assuming that you own 20%+ of the company, for the purposes of a mortgage you are self-employed.

Most lenders will calculate your income on one of the following bases -

- Director's Salary + dividends (as per SA302s). Some lenders need the divs to be fully covered by that year's profits rather than retained earnings

- Director's Salary + share of profit (after tax) as per accounts

- Director's Salary + share of profit (before tax) as per accounts

As I'm sure you know, your company pension contributions (from company bank account to your personal pension) reduce your profit. Unfortunately, if you need the lender to add the pension payments back on, your options will be severely limited and will depend on the subjective assessment of the underwriter.

It's one of those scenarios where the sensible thing to do tax-wise is not necessarily in sync with how lenders look at it.

adamc123

K_S said:

@adamc123 Assuming that you own 20%+ of the company, for the purposes of a mortgage you are self-employed.

Most lenders will calculate your income on one of the following bases -

- Director's Salary + dividends (as per SA302s). Some lenders need the divs to be fully covered by that year's profits rather than retained earnings

- Director's Salary + share of profit (after tax) as per accounts

- Director's Salary + share of profit (before tax) as per accounts

As I'm sure you know, your company pension contributions (from company bank account to your personal pension) reduce your profit. Unfortunately, if you need the lender to add the pension payments back on, your options will be severely limited and will depend on the subjective assessment of the underwriter.

It's one of those scenarios where the sensible thing to do tax-wise is not necessarily in sync with how lenders look at it.

really helpful. thanks for your time.