Do Mortgage Lenders Use Gross Or Net Income UK

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In the UK, mortgage lenders generally use gross income to assess self employed people and individuals’ borrowing capacity. For self-employed applicants, there is often some confusion around gross and net pay; hopefully, this article will help with that. Understanding this key difference is essential for prospective borrowers in preparing for a mortgage application.

Mortgage Lenders In The UK

Mortgage Lenders In The UK

The UK mortgage market is notably diverse and vibrant, offering an extensive range of products that cater to a wide array of financial situations.

This market encompasses traditional high-street banks, which often provide more conventional mortgage products, and specialist lenders, who make mortgage deals that are typically more flexible and cater to unique or complex financial circumstances. The vast choices available in the market mean that almost every borrower, regardless of their financial background or requirements, can find a suitable mortgage product.

Income assessment is a pivotal element in the mortgage application process. This evaluation includes a thorough analysis of the type and stability of the applicant’s income, which plays a crucial role for most lenders in determining their eligibility and the mortgage terms. Lenders look for consistency and reliability in income, which indicates a borrower’s ability to meet repayment obligations.

Understanding Income Types

When it comes to income types, understanding the distinction between gross and net income is essential for prospective borrowers. Gross income represents an individual’s total income before any deductions are made. This includes all sources of income such as wages, overtime pay, bonuses, and other additional earnings. Gross income offers lenders a broad perspective of an individual’s financial strength and earning capacity, which is critical in assessing their potential to manage mortgage repayments.

On the other hand, net income refers to the amount an individual actually takes home after all deductions, such as taxes, pension contributions, and other mandatory expenses, have been subtracted from the gross income. It reflects the disposable income available to the individual for their everyday expenses, including mortgage repayments. Net income is a key indicator of an individual’s day-to-day financial health and ability to manage financial commitments.

The main difference lies in their calculation. Gross income gives a broader view of financial capability, whereas net income reflects actual disposable income.

do mortgage lenders use gross or net income uk

Self-Employed Status In Mortgage Applications

When it comes to applying for self-employed mortgages in the UK, lenders assess individuals differently based on their business structure. The primary categories include contractors, sole traders, and limited company directors. Each group presents a unique set of financial statements and income streams, influencing how lenders calculate their borrowing capacity.

If you have less than 1 years accounts, we recommend checking out our “Guide To Mortgages For Self Employed With 1 Years Accounts”.

Contractors and Self-Employed Professionals

Contractors, especially those operating through limited companies, often have a distinct advantage in the mortgage application process.

Lenders may assess their income based on their contract value, akin to an employed person’s salary, rather than their taxable income. For example, a contractor earning £500 per day with a total annual income channelled through a limited company might be able to obtain a higher mortgage.

This is because the contractor’s taxable income appears lower after offsetting expenses such as equipment, travel, and office costs. Still, some lenders allow us to use their gross pay, providing a much more favourable borrowing capacity.

Sole Traders And Limited Company Directors

For sole traders, lenders typically look at net profits before deductions of tax and National Insurance, averaged over the last two years. This approach gives lenders an insight into the sustainable income level of the sole trader. There are some lenders that will accept the latest years net profits, which can enhance the amount they will be prepared to lend.

Limited company directors face a different assessment. Lenders generally consider a combination of salary and dividends drawn from the company before tax.

However, some lenders might opt to assess the net profit plus salary, which can be more advantageous. This method is beneficial as it avoids the need for the sole trader or director to draw higher dividends, thereby incurring more tax, to improve their mortgage prospects.

How Can I Secure A Mortgage When Self-Employed?

Self-employed mortgage applicants should focus on presenting their income in the most favourable light, in line with how lenders assess their specific business structure. For contractors, this often means leveraging their gross contract value to enhance mortgage affordability. Sole traders should highlight their net profits, while limited company directors might find it advantageous to focus on a combination of net profits and salary, or in some cases, just the salary and dividends, depending on the lender’s preference.

Preparing Your Mortgage Application

When preparing your mortgage application, ensuring that your income is consistent and meticulously documented is crucial. This is especially important for self-employed individuals, as their income may fluctuate more than that of salaried employees.

Clear, comprehensive documentation, such as certified accounts prepared by a qualified accountant, is key to explaining any income variations or irregularities.

Working with specialist mortgage brokers can be particularly beneficial in this process. They can assist in ensuring that all necessary documents, including self-certified mortgages if applicable, are in order and presented effectively to the lender. Mortgage brokers have the expertise to navigate the complexities of self-employed mortgage applications and can provide invaluable guidance in maximising your chances of approval.

Gross Vs Net Income: What Do Lenders Prefer?

Gross Vs Net Income: What Do Lenders Prefer?

For employed people lenders use their gross salary. Self employed income is often a more complicated calculation. If you are a contractor then many lenders will see you as employed even though you have your own self employed vehicle behind that contract. For sole traders and limited company directors lenders will look at your share of net profits alongside any salary you pay yourself. Your net profits are technically your gross income as this is before any personal tax and NI has been paid. Some lenders consider limited company profits before tax, some after. The gross day rate is often considered for contractors, reflecting their unique income structure. In contrast, sole traders are assessed on net profits, and limited company directors are typically evaluated based on salary and dividends. Some lenders, however, are open to considering net profits plus salary for limited company directors, offering a more advantageous route for mortgage applications.

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Jones and Young: The Contractor Mortgage Experts

At Jones & Young, we stand out among mortgage companies as an independent mortgage lending firm based in Petersfield, Hampshire. Our services cater to a diverse client base across the UK, including sole traders, first-time buyers, and self-employed business professionals.

Our team specialises in various mortgage services, catering to first-time buyers, self-employed individuals, and CIS customers, among others. We focus on providing tailored solutions for more complex mortgage scenarios, including portfolio landlords, commercial mortgages, and later-life lending.

With over 10 years of experience in the industry, we are committed to delivering professional and personalised mortgage advice.

For expert mortgage guidance and services, you can reach us at [email protected] or visit our office at 16 College Street, Petersfield, GU31 4AD.


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Jones & Young are professional mortgage lenders, delivering industry-leading mortgages to first-time buyers, self-employed and CIS customers for over 10 years.

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