Mortgage for Self Employed & How to Prove Income - Help

Many if us on this site do understand the difference between taxable expenses/profit and cash expenses/profit. However that doesn't change the lending criteria of the mortgage companies so there's no point getting so annoyed with everyone.

OP, I am both CeMAP qualified and a chartered accountant.

By and large if you read a lender's lending policy guidance notes the detail will state that their calculations will be based on UK taxable income. If you are self-employed an SA302 is the method by which your taxable income is calculated. If you are employed the method will be payslips / P60.

The bank will not use the figures on your bank statement as this represents gross revenue to your business, not your personal taxable income. The lender is not deducting depreciation, this is an accounting adjustment. Your accountant is claiming write down allowance, you could choose not to claim write down allowance, as you could choose not to deduct other business expenses. This would lead to a much higher level of taxable income and a higher tax bill.

By being self employed you will incur expenses that employed people do not; the lender wants to take this into account and this is the method they have chosen. By claiming expenses and allowances to (absolutely legally and correctly) reduce your tax bill but wanting to use a different set of figures to calculate your borrowing ability you are trying to have your cake and eat it, and I mean that in the nicest way.

I appreciate why you feel this is unfair, I've not worked in the mortgage industry since 2008 but in the 10 years I'd spent in the industry previous to that your experience is something I saw many, many times. My husband is self employed and this is something we have to deal with every time we move or remortgage. You have to make a decision as to whether you want the low tax bill or the big mortgage and pre-plan in the years beforehand.

TBH it may be different in Scotland, but the same principle applies, the builder will want to get a commitment from you as early as possible.

Our approach to timing an application on HTB - Equity Loan sounds the same. We are just submitting the Property Information Form now on cases expected to complete in September and we won't do the mortgage application for another couple of weeks to ensure the six months on the mortgage offer doesn't expire before the house is finished.

We'd expect the mortgage offer on these cases to be issued in late March/early April and for the contracts to be exchanged soon after. This is the point the English buyer is committed to purchase and the builder knows he can fit out the property to the buyer's spec.

This is the way we do Equity Loan cases in England;-

Check HCA Affordability Calculator
Obtain agreement in principle
Preliminary reservation done with builder and solicitor selected
Property information form and reservation submitted
HTB - EL Authority To Proceed issued (ATP)

All the above is done in the first week.

Formal reservation completed and fee paid
Full mortgage application submitted
Lender valuation done and supporting docs submitted
Mortgage Offer issued
Solicitor submits Authority to Exchange (ATE)
Deposit paid to solicitor
Contracts exchanged with completion "on notice" when build over

All of the above is done within 28 days of ATP issue.

Property finished and kitted out to buyer's spec
Demonstration visit and snagging inspection
Notice given
Solicitor submits Forms 1 & 2 for Equity Loan release
Completion takes place, keys and money change hands and mortgage payments commence.

All of the above several months later and an be upto nine months from ATP, upto six months from ATE.