Frequently asked questions:
Complex income
Running a business, working on contracts or receiving income from several sources can bring different mortgage questions.
These FAQs explain the main options and considerations for complex income mortgages. Lenders take different approaches, so understanding how your income is earned, structured and evidenced is an important part of finding the right mortgage.
“Do lenders use salary and dividends for company directors?”
Directors & shareholders
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Many lenders use salary and dividends, particularly where the director owns a significant shareholding. Others can consider salary plus a share of company profit.
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This is the standard policy, especially for mainstream banks. It can understate affordability where the director deliberately retains profit within a successful company.
Many lenders are more creative with their approach to business owners’ income and can look at post-tax profit instead of dividends. A few can even look at pre-tax profit in some circumstances and consider other factors such as voluntary pension contributions, retained profit and projected income.
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Some lenders can consider retained profits, usually where the applicant has sufficient ownership and control. The lender will also examine whether withdrawing that money would weaken the business.
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Selected lenders can use salary plus the applicant’s share of net profit instead of salary and dividends. Shareholding, profitability and the company’s financial strength will be important.
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A small number of lenders can use pre-tax profit in suitable cases, particularly for a 100% shareholder. This normally requires detailed accounts and individual underwriting.
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An employee with a small shareholding may still be treated as employed, while a larger or controlling interest will usually result in self-employed assessment.
Most lenders treat applicants as self-employed once their shareholding reaches a threshold, commonly between 20% and 25%.
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An employee with a small shareholding may still be treated as employed, while a larger or controlling interest will usually result in self-employed assessment.
Most lenders treat applicants as self-employed once their shareholding reaches a threshold, commonly between 20% and 25%.
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Some lenders can add regular company pension contributions back into the income calculation for business owners. They will usually need to establish that the contributions are discretionary and could sustainably be redirected.
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A limited number of lenders consider projections supported by current management accounts and trading evidence. Projections generally carry more weight when the business is well into its current financial year.
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There are lenders who can consider decreasing profits but they will want to understand the reason and whether the reduction is continuing.
Some use the lower figure, while others may take a broader view of the business if there are extenuating or one-off circumstances affecting the accounts.
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It may be possible to adjust for a genuine non-recurring cost, such as major equipment or recruitment expenditure. The expense and its positive effect on current trading must be clearly evidenced.
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There are lenders who can consider new business owners, particularly where there is continuity from previous employment or an earlier business structure.
The lender pool narrows further where there is little trading history and no completed accounts.
“Am I treated as self-employed if I own shares in my employer?”
Sole traders, partnerships and LLPs
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Lenders normally use taxable net profit rather than turnover. The calculation may use an average, the latest year or the lower figure where profits have declined.
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Drawings can help demonstrate personal cash flow, but they are not usually the principal affordability figure.
Because the person and business are not separate entities, taxable net profit is normally more important.
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Net profit is normally used because turnover does not account for the costs of generating the business. A high-turnover business can still produce relatively modest usable income.
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Many lenders request two or three years of accounts or tax calculations. Some will consider a shorter history where the wider case is strong or there is a compelling reason to do so.
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Many lenders take an average over two or three years, particularly where profits have fluctuated. Others use the latest year when income is stable or increasing.
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Some lenders can use the latest year where an improvement in the figures appears sustainable.
They may ask for current bank statements, management figures or an accountant’s explanation.
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The applicant is normally assessed on their taxable share of partnership profit. The lender may also examine the partnership accounts and how profits are allocated.
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Members are generally assessed on their share of LLP profits, although lender treatment varies. Accounts, tax calculations and the LLP agreement may be required.
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There are lenders who can consider continuity between old and new employment structures for a business owner or sole trader. It helps where the applicant’s trade and role have remained substantially unchanged.
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The lender may separate salary, cash bonuses, deferred awards, shares and carried interest before deciding what can be used.
Specialist underwriting is often required where variable remuneration exceeds basic salary.
“Can I get a mortgage if my company made less profit last year?”
Contractors, freelancers & consultants
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Lots of lenders consider mortgages for this type of work.
They may use the contract value, day rate, payslips or completed accounts depending on how the work is structured.
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Most lenders who consider contract income will multiply the day rate by five working days and an assumed number of weeks. The number of weeks used varies between lenders.
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Lenders commonly use figures such as 46 or 48 weeks, although policies vary. This allowance reflects holidays and possible gaps between assignments.
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There are a good number of options for people who work under an umbrella company.
Some lenders treat umbrella workers as employees, while others apply contractor rules or examine the underlying assignment.
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There are some good options for agency workers, especially where there is an established history of regular agency work.
Lenders may consider weekly earnings, continuity, seasonal patterns and gaps between assignments.
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Fixed term contracts can be considered by some lenders.
Remaining contract length, renewal history, occupation and previous experience will influence which lenders are available.
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Requirements vary from no previous contracting history to one or two years.
Applicants entering a contract within an established profession may have more options.
Some lenders are less concerned about a short contracting history if the next contract renewal has been guaranteed.
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Short, explainable gaps are not necessarily a problem. Longer or frequent gaps may lead the lender to use a lower annual income or request additional evidence.
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Some lenders use gross income shown on CIS statements rather than taxable net profit. This can produce a considerably higher affordability figure.
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Lenders may request CIS vouchers or statements, bank statements, payslips and tax calculations.
The precise requirements depend on whether the applicant is assessed through CIS income or self-employed profit.
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Lenders may treat freelancers or consultants as sole traders, company directors, contractors or employees depending on their arrangements.
The trading structure often matters more than the job title.
“Can lenders use the latest year’s profit instead of an average?”
Variable income
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Many lenders accept regular bonuses, but the percentage and reference period vary.
A guaranteed bonus may receive different treatment from a discretionary payment.
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Some lenders use all established commission, while others apply a percentage or average. Payslips and annual earnings records normally need to show consistency.
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Lenders are typically happy with overtime when it is regular and likely to continue.
They may average it over several months or compare the latest year with the previous one.
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Regular contractual allowances may be accepted, particularly where they are not simply reimbursing an expense. Car, accommodation, travel and location allowances can all be treated differently.
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This varies from several months to two or three years. A longer history generally provides more lender choice, but recent income may be sufficient in some cases.
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A lender may include a new or increased bonus where it is contractually guaranteed or confirmed by the employer.
Discretionary bonuses usually need a receipt history before receiving full credit.
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A lender may average earnings over a period that captures the complete working cycle. Using only the strongest recent months can give a misleading result.
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If a second job or bank work has an established history and appears sustainable alongside the main occupation then a lender may be willing to include it in your affordability calculation.
They may consider working hours as well as the income received.
“Do mortgage lenders include bonuses as income?”
Investments & senior remuneration
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Dividends, interest, distributions or regular withdrawals may be considered when they are adequately evidenced.
Lenders may also assess the size and composition of the underlying portfolio.
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A small number of lenders can notionally monetise accessible investments without requiring encashment.
They may apply a “haircut” and then divide the resultant balance over the mortgage term or use an assumed annual percentage.
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Vested shares may be considered as investments or as part of an established remuneration history. The approach depends on whether the applicant retains, sells or receives ongoing awards.
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Selected lenders accept vested RSUs where there is an established history of receipt. Unvested awards and uncertain future grants are less likely to be included.
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They can provide useful background but are seldom treated as current income or accessible assets. Future vesting schedules may support the sustainability of an established pattern.
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Some specialist lenders and private banks can consider carried interest. They will usually examine historic receipts, future entitlements, fund performance and the timing of likely distributions.
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State, workplace and private pension income is widely accepted once it is in payment and can be properly evidenced.
A small number of lenders can consider projected or undrawn pension income.
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Some lenders can use an available pension that has not yet been drawn, particularly where the applicant has reached the relevant age. Treatment depends on the pension value, accessibility and proposed mortgage term.
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The lender may separate salary, cash bonuses, deferred awards, shares and carried interest before deciding what can be used.
Specialist underwriting is often required where variable remuneration exceeds basic salary.
“Can vested shares be used for mortgage affordability?”
International wealth
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Overseas investments, cash deposits, property and other assets can form part of the lender’s assessment of your overall financial position, particularly for high-value mortgages and private bank lending.
Whether those assets directly increase borrowing capacity depends on the lender and how the mortgage is structured. Their location, liquidity, ownership and source of wealth will also be considered, with additional due diligence often required for assets held overseas.
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An overseas investment portfolio can be relevant when assessing your wider wealth and, with some private banks, may form part of the overall banking relationship.
Depending on where the investments are held and what they consist of, a lender may consider them as evidence of financial strength, accept them as assets under management, or potentially use them within a broader lending structure.
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Many private banks and specialist lenders are accustomed to clients whose property, investments, businesses and other assets are spread across several jurisdictions.
It can, however, make the underwriting and due diligence more detailed. The lender may need to establish ownership, value and source of wealth across different countries, and some jurisdictions are more readily accepted than others.
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Private banks in particular are accustomed to assessing offshore investment portfolios, deposits and other assets as part of a client’s wider financial position.
The jurisdiction, ownership structure, liquidity and source of the assets will be important. Some banks can also consider offshore assets as part of an assets-under-management relationship, although requirements vary considerably between institutions.
See our Expat & overseas worker FAQ for questions about residency, foreign income, foreign nationals and overseas employment.
“Can investment income be used for a mortgage?”
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Specialist lenders and private banks can consider lending to trusts, depending on the trust structure, beneficiaries, trustees and purpose of the borrowing.
The lender will normally require the trust documentation and legal advice may be necessary to confirm that the trustees have the appropriate powers to borrow and grant security.
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They consider whether distributions are fixed or discretionary, and whether they are likely to continue. Trust documents, payment history, tax records and evidence of underlying assets may be required.
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Companies and special purpose vehicles (SPVs) can borrow against residential and investment property, including at high values.
The appropriate lender will depend on the company structure, the property and its intended use. A straightforward property investment SPV may fit standard large lending criteria, while more complex corporate structures can be better suited to private banks or lenders offering individually underwritten facilities.
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Some private banks and specialist lenders can lend to offshore companies purchasing or refinancing UK property, although the lender pool is more specialist.
The lender will usually undertake detailed due diligence on the company, its beneficial owners and the source of wealth and funds. The jurisdiction in which the company is incorporated can also significantly influence which lenders will consider the structure.
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This is an area where private banks can be particularly useful, as they are often able to consider structures that fall outside conventional residential mortgage criteria.
This might include properties held through trusts, companies, partnerships or other ownership arrangements. The bank will assess the underlying individuals, purpose of the structure, source of wealth and the security being offered rather than looking solely at the legal owner of the property.
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Some private banks and specialist lenders can take additional security where it helps support the overall lending proposition.
This could include another UK property, an investment portfolio or a cash deposit. Cross-collateralising assets can sometimes increase borrowing capacity or reduce the loan-to-value against the primary property, which may result in a lower interest rate. However, it also places the additional assets at risk if the borrowing is not repaid.
“Can I get a mortgage with only one year’s self-employed accounts?”
Complex structures
“Can overseas assets be used to support a UK mortgage?”
“Can pension income be used for a mortgage?”
“Can additional properties be used as security?”
“Do lenders use turnover or net profit for sole traders?”
“Can I get a mortgage as a contractor?”
“How much contract history do mortgage lenders require?”
“How much commission can be used for mortgage affordability?”
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