What lenders actually look at
Lenders want confidence that your income is real and likely to continue. For sole traders that usually means one to two years of accounts or tax returns, evidenced by SA302s (your tax calculations) and tax year overviews from HMRC. Most lenders prefer two years; a useful minority will consider one.
If you run a limited company, it gets more interesting. Most lenders assess salary plus dividends, which quietly punishes directors who sensibly leave profit in the business. Some lenders will instead consider your share of net profit, including retained profit, and that can transform how much you can borrow. Same company, same numbers, very different answers.
Contractors are different again: some lenders will happily work from your day rate rather than your accounts.
Whatever shape your income takes, the paperwork is easier to gather than it sounds. Your accountant can produce most of it, HMRC's online account covers the rest, and if you start collecting it early the application itself is rarely the bottleneck.
Myths worth ignoring
- "You need three years of accounts." Two is standard, and one is possible with the right lender.
- "Self-employed means a worse rate." It doesn't. You get the same products as everyone else; you just evidence your income differently.
- "You'll need a huge deposit." The normal deposit bands apply to you too.
The one true bit: a recent dip in profits needs explaining. Lenders read your figures like a story, and an accountant's note or a strong current year often settles the question.
How a broker helps
This is a criteria game, and it's what brokers are for. We know which lenders average two years of figures and which use the latest, which will look at retained profit, and which are relaxed about a bumpy year. Dorset has more than its share of self-employed people: trades, tourism businesses, fishing crews out of Weymouth harbour, freelancers in Bridport and Dorchester. We spend a lot of our time on exactly this.
If you work for yourself anywhere from Portland to Poole, come and see us. Bring your last couple of years' figures if you have them; if not, come anyway.